FUNERAL-RELATED

INDUSTRIES

Complaints and State

Laws Vary, and FTC

Could Better Manage

the Funeral Rule

United States General Accounting Office

GAO Report to Congressional Requesters

September 1999

GAO/GGD-99-156

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-99-156 Funeral-Related Industries

B-281214

September 23, 1999

The Honorable Charles Grassley, Chairman

The Honorable John B. Breaux, Ranking Minority Member

Special Committee on Aging

United States Senate

The Honorable Susan M. Collins, Chairman

The Honorable Carl Levin, Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

This report responds to your request that we examine various issues

involving consumers’ dealings with funeral-related or death care

industries, which include businesses that provide funeral and cemetery

goods or services. You expressed concern about consumers who may be

faced with unneeded or inflated expenses or unfair or deceptive sales

practices at a time when they are highly vulnerable—after the death of a

loved one. You further stated that recent media accounts have focused on

the need for consumers to approach death care transactions with

considerable caution, especially because these purchases can be some of

the most costly and emotionally difficult financial transactions a consumer

can make.

As agreed with your offices, our objectives were to (1) describe the

availability of information on the nature and extent of consumer

complaints about death care industries, (2) describe and assess the

Federal Trade Commission’s (FTC) efforts to ensure compliance with its

Funeral Rule, and (3) provide information on selected state governments’

roles in protecting consumers in their death care transactions. The

selected states were California, Florida, Maryland, New York, and Texas

(see our scope and methodology section for a discussion of our selection

criteria). We focused on transactions concerning funeral homes;

cemeteries; and preplanned and prepaid funeral arrangements, commonly

known as preneed arrangements.

Comprehensive information on consumer complaints that would indicate

the overall nature and extent of problems that consumers experienced

with various aspects of death care industries was not available for a

variety of reasons. One reason is that consumers can complain to a variety

Results in Brief
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of organizations about death care issues and can lodge the same complaint

to more than one organization. Another reason is that no single

organization or combination of organizations collects and compiles all

complaints into one database. Also, each organization can have its own

way of compiling and maintaining complaint information, which would

confound efforts to compile and analyze aggregate complaint data.

Although the organizations we contacted were able to provide some data,

the number of complaints about death care was generally low compared to

complaints about other categories of consumer issues. Among the reasons

these organizations gave for the relatively low number of complaints was

the personal or emotional component of the death care situation.

FTC’s Funeral Rule requires that funeral providers give consumers

accurate, itemized price information and various other disclosures about

funeral goods and services. Over the last 5 years, FTC has taken steps,

including distributing compliance guides and working with the funeral

home industry, to promote compliance with the Funeral Rule. FTC took

these steps because it was concerned about what it perceived as a

relatively low level of compliance (about one-third) among funeral homes

in the late 1980s.

FTC maintains that compliance among providers covered by the Rule has

increased “substantially” over the years. However, FTC does not have a

systematic or structured process for measuring funeral homes’ compliance

so that overall conclusions can be drawn about their actual compliance

with the Rule. FTC’s efforts to measure compliance have been limited to

narrowly scoped test-shopping sweeps in selected areas—that is, they are

not representative of the universe of funeral providers and do not cover all

elements of the Rule. We analyzed the available records of funeral homes

FTC test-shopped in fiscal years 1997 and 1998. Our analysis indicated that

among the limited sample of homes visited, compliance indeed was high

for the Funeral Rule’s core requirement--giving consumers itemized price

lists early in their meetings with funeral home staff--and somewhat lower

for other elements of the Rule we reviewed. However, from the records we

reviewed, it appears that FTC did not always take enforcement action

against funeral homes that potentially violated the Rule and did not always

document the reason. For example, according to its records, in fiscal years

1997 and 1998, FTC did not take action in over half the instances in which

funeral homes had one or more potential Funeral Rule violations.

According to FTC, one of the primary reasons it may not have taken action

was because it exercised prosecutorial discretion. When records indicated

that FTC took action on a potential Rule violation, we were not always

able to determine why. In addition, FTC’s letters to the funeral homes in
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violation did not always provide the reason FTC took action, a practice

that is suggested in FTC guidance on responding to a violation. We are

making recommendations concerning these issues near the end of this

report.

The five selected states differed in their approaches to protecting

consumers who deal with funeral homes and cemeteries and make

preneed arrangements. Differences were most notable concerning the (1)

regulatory structure of the five states and (2) requirements that these

states placed on death care providers. However, the five states also had

similarities in their approaches to protecting consumers who engage in

death care transactions. For example, the five states all had licensing and

minimum education requirements that funeral providers were required to

meet. Each of the states also had laws and regulations that required

funeral providers to disclose price and other information to consumers

similar to the requirements of FTC’s Funeral Rule.

Each year, American consumers arrange more than 2 million funerals at a

total cost of billions of dollars. During 1997, according to Conning &

Company, an insurance industry publications and research firm,1

 almost

27,000 funeral service providers, such as funeral homes and crematories,

had sales revenue of about $10 billion. The National Funeral Directors

Association (NFDA) reported that in 1997, the average adult funeral cost

about $5,500, including casket and vault. Table 1 shows NFDA data on the

average cost for the most commonly selected funeral items as of January

1997.

 

1

Preneed Insurance: A Business to Die For? 1998, Conning & Company (Hartford: 1998).

Background
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Most commonly selected items Average costa

Nondeclinable professional service charges $1,079

Embalming 370

Other preparation (e.g., cosmetology, hair) 133

Visitation/viewing 305

Funeral at funeral home 326

Transfer of remains to funeral home 134

Hearse (local) 161

Service car/van 81

Acknowledgment cards 19

Subtotal $2,607

Casket, 18-gauge steel, sealer, velvet interior 2,176

Subtotal with casket $4,783

Vault, asphalt-coated concrete, sealer 761

Total with casket and vault $5,544b

Note: Figures do not add due to rounding.

a

According to NFDA, the data on average cost of most commonly selected items are based on figures

from its members’ general price lists as of January 1997. NFDA’s data were collected from 564

questionnaire responses out of a total random sample of 1,500 NFDA members.

b

The prices listed by NFDA do not include cemetery charges, such as grave space, opening/closing

grave, crypts/mausoleum, monument, or marker because these items are usually not purchased

through the funeral home. NFDA included the cost of a vault for reference even though, according to

NFDA, some funeral homes offer vaults and others do not.

Source: National Funeral Directors Association.

NFDA also maintains some data on the cost of final disposition, such as

burial and cremation. For example, in 1997, according to NFDA, the cost of

an individual grave space ranged from about $150 to over $1,900, and the

cost of opening and closing the grave ranged from $125 to $750 for

nonovertime work. In addition, according to NFDA, the cost of cremation

ranged from $75 to $395; a bronze urn to hold cremated remains cost from

$230 to $1,800; and in-ground placement of an urn ranged from $450 to

$1,250. Although the variety of choices and the range of costs make it

difficult to precisely estimate the cost of a typical funeral and burial,

AARP2

 estimated the cost in 1998 to be about $8,000 and as much as

$10,000 in some markets. Furthermore, AARP reported that the cost of

funeral and burial arrangements is increasing. In fact, according to data

collected by the Bureau of Labor Statistics (BLS), funeral expenses have

grown faster than the rate of inflation. Figure 1 shows the extent to which

funeral expenses have exceeded the rate of inflation, as indicated by the

consumer price index (CPI), since 1990.

 

2

AARP was formerly known as the American Association of Retired Persons.

Table 1: Average Cost of Most

Commonly Selected Funeral Items, as of

January 1997
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Source: Historical CPI for all Urban Consumers (U. S. city average) by commodity and service group

and detailed expenditure categories, CPI Detailed Report, March 1999, BLS, Department of Labor.

FTC has a major role in protecting consumers during death care

transactions. The FTC Act declares unfair or deceptive acts or practices to

be unlawful when they affect commerce.3

 Under its authority to

promulgate rules, FTC has issued a trade rule entitled Funeral Industry

Practices—more commonly called the Funeral Rule.4

 The Funeral Rule

was designed to (1) ensure that consumers receive the information

necessary to make informed purchasing decisions and (2) lower existing

barriers to price competition in the market for funeral goods and services.

The Funeral Rule, which became fully effective in April 1984, declares it an

unfair or deceptive act or practice for funeral providers to (1) fail to

 3

15 U.S.C. 45.

4

FTC’s authority to issue rules is set forth at 15 U.S.C. 57a(a) and 15 U.S.C. 46(g). The Funeral Rule is

set forth at 16 C.F.R. Part 453.

Figure 1: Percent Change in CPI From

Previous Year for Funeral Expenses

Compared With CPI for All Items From

1990 Through 1998
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Page 6 GAO/GGD-99-156 Funeral-Related Industries

furnish accurate price information to funeral consumers, (2) require

consumers to purchase items they do not want to buy, and (3) embalm

deceased human remains for a fee without authorization. The Rule further

declares it a deceptive practice for funeral providers to make certain

misrepresentations, such as that embalming is required by law when it is

not, that caskets must be used for cremation, or that funeral goods and

services have certain preservation and protection capabilities. To prevent

those practices, providers of funeral goods and services are to, among

other things, (1) give detailed printed information about prices, including

certain legal disclosures, to consumers who inquire about funeral

arrangements; (2) allow consumers to select only those goods and services

they desire (rather than offering goods and services only in predetermined

packages); and (3) seek express approval before embalming the deceased

for a fee. Since the Funeral Rule’s inception, it was amended once in 1994.

In April 1999, FTC announced that it was beginning to review the Funeral

Rule to determine if it should be further amended, maintained as is, or

repealed.5

 Appendix I contains a copy of the Funeral Rule that was in

effect as of July 1999.

State and local governments also have a role in regulating and overseeing

funeral homes and cemeteries. Commercial cemeteries are regulated

primarily at the state or local level.6

 According to a 1998 book on making

funeral arrangements,7

 funeral homes and cemeteries are regulated by

state boards as well as other agencies, including offices of attorneys

general and departments of health and insurance. In addition, the book

points out that licensing and minimum education requirements for funeral

directors and embalmers differ from state to state. State laws also are the

primary source of regulation over preneed funeral contracts. According to

a 1996 law journal article, although every state, with the exception of

Alabama and the District of Columbia, has enacted some sort of regulatory

action to oversee preneed contracts, the laws vary from state to state.8

Examples of areas of differences in state statutes include the funding

options available to consumers, limitations on where proceeds from

preneed funeral contracts may be invested, and the percentage of preneed

sales proceeds required to be placed in trust.

 

5

FTC is currently soliciting the views and suggestions of interested parties, and FTC staff hope to have

the entire rule review process completed within 2 years.

6

Religious, municipal, and fraternal cemeteries are usually exempt from the various state regulations

that govern commercial cemeteries.

7

Lisa Carlson, Caring for the Dead: Your Final Act of Love (Hinesburg, VT: Upper Access Inc., 1998).

8

Judith A. Frank, “Preneed Funeral Plans: The Case for Uniformity,” The Elder Law Journal, Spring

(1996).
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One of the major changes in the nature of death care industries is the

increase in preneed contracts. Conning & Company estimated that the

preneed funeral market, including preneed trust deposits and preneed

insurance contracts, amounted to over $21 billion in 1996. Another change,

according to FTC, is that cemeteries and casket retailers are now

competing with traditional funeral providers, such as funeral homes, in the

sales of caskets and other funeral goods and services. At the same time, an

NFDA official said that there has been a movement away from

independent family-owned funeral homes and a movement toward

corporate or publicly owned homes. And according to reports in the

media, there is a growing incidence of funeral homes and cemeteries being

owned by the same few organizations.

To meet our objectives, we did our work primarily at FTC in Washington,

D.C., and Dallas, TX; and at state funeral and cemetery regulatory offices

in five states—California, Florida, Maryland, New York, and Texas. As

agreed with your offices, we focused our efforts on five states because of

time and staffing constraints. We selected California, Florida, New York,

and Texas because these states had the highest number of deaths of all 50

states in 1998. We selected Maryland because it recently had established a

state regulatory agency with oversight responsibility for all but certain

religious nonprofit cemeteries and because of Maryland’s close proximity

to our headquarters. In addition, we interviewed selected national

representatives of industry trade and regulatory associations and

consumer advocacy groups that deal with death care issues (see app. II for

the organizations of the representatives and officials we spoke with). From

each of these organizations we collected and reviewed available

documents on such matters as issues affecting death care industries and

consumers, sales and revenues of death care providers and average costs

of death care goods and services, and federal and state regulatory issues.

We also did a literature and Internet search for information on issues

affecting death care industries and consumers and reviewed pertinent

books, magazines, trade publications, and periodicals regarding consumer

concerns with related death care industries. We did our work between July

1998 and July 1999, in accordance with generally accepted government

auditing standards. Appendix II discusses our objectives, scope, and

methodology in more detail.

We requested comments on a draft of this report from FTC’s Chairman.

FTC’s comments are discussed near the end of this letter and are reprinted

as appendix VI. We also contacted responsible officials from the

regulatory bodies in the five states to verify the information on regulation,

Scope and

Methodology
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Page 8 GAO/GGD-99-156 Funeral-Related Industries

oversight, and consumer information in this report. We made technical

changes as appropriate.

Comprehensive information on consumer complaints that would indicate

the overall nature and extent of problems that consumers experienced

with various aspects of death care industries was not available for a

number of reasons. One reason is that consumers can complain to a

variety of organizations about death care issues and can complain to more

than one organization about the same incident. Another reason is that no

single organization or combination of organizations collects and compiles

all complaints into one database. Also, each organization can have its own

way of compiling and maintaining complaint information, which would

confound efforts to compile and analyze aggregate complaint data.

Although the organizations we contacted were able to provide some data,

the number of complaints about death care was generally low compared to

complaints about other categories of consumer issues. Among the reasons

these organizations gave for the relatively low number of complaints was

the personal or emotional component of the death care situation.

Consumers can complain to a number of organizations about death care

issues—from FTC at the federal level, to funeral licensing boards at the

state level, to local consumer groups. Thus, it is difficult to determine the

universe of organizations accepting complaints. In addition, consumers

can lodge the same complaint to more than one of these organizations. For

example, although consumers can lodge a complaint with FTC, intervening

in individual disputes is not something FTC does. Instead, FTC refers

consumers to other organizations for complaint resolution. Thus, FTC

officials said that a single complaint could be contained in the files of

multiple organizations. At the state level, consumers may complain to a

variety of organizations. For example, in Texas, a consumer may complain

to the state’s office of the Attorney General and also to regulators

responsible for any particular aspect of the death care industry, such as

the Texas Department of Banking, which is responsible for regulating

cemeteries and preneed funeral arrangements; or the Texas Funeral

Service Commission, which is responsible for regulating funeral providers.

Consumers also can register complaints with nongovernmental

organizations, both those that handle consumer complaints in general and

those that specialize in death care matters. One of the best-known general

consumer complaint organizations is the Better Business Bureau (BBB),

which accepts complaints and can intervene on behalf of consumers

through its local bureaus. One specialized organization that accepts

complaints only about death care is the Funeral Service Consumer

Comprehensive

Information on Death

Care Complaints Was

Not Available

Consumers Can Complain

to a Number of

Organizations
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Page 9 GAO/GGD-99-156 Funeral-Related Industries

Assistance Program (FSCAP), which provides consumer information,

problem-solving resources, and recommendations for action concerning

funeral services. According to FSCAP, it attempts to work with consumers

to resolve their concerns, but if it cannot, FSCAP officials refer them to the

appropriate state or local government agency. Another specialized

organization, the Cemetery Consumer Service Council (CCSC), assists

consumers in matters involving private cemeteries and memorial parks.

According to CCSC, consumer complaints it receives at its national office

are forwarded to the appropriate state CCSC representative for

investigation and action.9

 CCSC reports that its state representatives

resolve many complaints by telephone and then notify the consumer. At

the local level, organizations such as the Syracuse Memorial Society will

respond to complaints about death care industries.

Regardless of how many organizations accept complaints, no single

organization or combination of organizations collects and compiles all

complaints. Even if data from all of the organizations that accept

complaints could be collected and compiled, because of differences in the

way complaints are recorded, there is no assurance that the aggregate

number of complaints would be accurate—that is, not overstated or

understated—or that the nature of complaints would be recorded. This is

because the various organizations and agencies that accept complaints

have their own approaches for compiling and maintaining complaint

information, often in dissimilar formats that do not lend themselves to

systematic compilation or analysis.

For example, in the selected states we visited, we found that most of the

states (California, Maryland, New York, and Texas) used a manual process,

rather than an automated one, for recording and filing death care

complaints. This manual process made it difficult to retrieve aggregate

data. For example, before 1998, in Maryland, complaints for cemeteries

were filed with complaints about other licensed businesses, such as beauty

shops. For the one state, Florida, that used an automated system for

complaints, detailed information about the nature of complaints was not

recorded.

In addition, not all organizations that accept complaints record

information on the nature of complaints, only whether a complaint was

lodged. For example, BBB headquarters, which compiles all BBB data on

consumer complaints, does not have information in its database on the

 

9

When no state CCSC exists, the national office is to work with the state cemetery board or similar

state government agency to assist the consumer.

No Single Organization or

Combination of

Organizations Collects and

Compiles All Complaints
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nature of those complaints, only information on the number of complaints

by industry category. The reason for this, according to a BBB official, is

that local bureaus of the BBB give headquarters statistics only on the

aggregate number of complaints. Only the bureaus have details on the

nature of those complaints. For that information, one would have to

contact each local BBB office, which may or may not have the information

available for a given year.

Although we were unable to identify the overall nature and extent of

consumers’ problems with various aspects of death care industries,

available complaint data indicated a range of consumers’ concerns. These

concerns ranged from cemeteries’ failure to mow or trim grass to funeral

homes’ efforts to dissuade customers from using caskets sold by parties

other than themselves. Although the range of complaints was broad, we

did not find large numbers of complaints at FTC, nongovernmental

organizations, and selected state agencies. Generally across all of the types

of organizations we contacted, most officials and representatives said that

they received few complaints about death care. Reasons provided for the

low number of complaints included the personal or emotional component

of the death care situation and the fact that consumers may have been

satisfied with the goods and services received.

For example, for fiscal year 1998, FTC’s internal consumer complaint

database, the Consumer Information System (CIS), contained 46,091

consumer complaints, 152 of which were on the subject of death care (0.33

percent). FTC staff assessed these complaints and determined that 58

involved potential violations of the Funeral Rule; the remaining 94

concerned other issues, such as rude service, contractual disputes, and

cemetery and preneed complaints. Our analysis of CIS data for specific

complaints consumers made to FTC in fiscal year 1998 includes the

following as examples of the broad range of complaints received:

• A California consumer used the Internet to complain that a preneed trust

for the entire cost of a funeral was purchased in 1977, yet additional fees of

$1,026 were added when the trust was executed in 1998.

• A Michigan consumer complained by mail that a funeral home’s fees were

combined rather than being displayed as separate line items as required by

FTC’s Funeral Rule.

• A New Jersey woman complained by telephone that she was a victim of

deceptive practices. The complainant reported that her mother was

embalmed without permission and that the funeral home claimed that

communicable disease laws prevented the use of a rental casket; her

inquiry to the state mortuary board revealed that there were no such laws.

Available Data Indicate a

Range of Concerns, but

Most Organizations Stated

There Were Few

Complaints
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• A California consumer complained by telephone that a funeral home was

going to charge an additional $470 for the use of a casket not purchased

directly from the home.

• An Iowa consumer complained by mail that the casket delivered by a

funeral home was not the model specified in the preneed agreement and

that this funeral home regularly attempted to get customers to pay more

for caskets.

The BBB received 453 complaints about death care goods and services for

calendar year 1997, the most recent year for which BBB headquarters had

data. Table 2 shows the area of death care goods and services about which

consumers complained and the number of complaints BBB received.

Area of death care Number of complaints

Funeral-related services 255

Funeral directors 169

Monuments/memorials 22

Cremation services 4

Cemeteries 3

Total 453

Note: Because we did not contact local BBBs and BBB headquarters has data in its database only on

the number of death care complaints, we could not provide information on the nature of these

complaints.

Source: BBB data.

When comparing 1997 BBB inquiry and complaint data for death care to

such data for other types of businesses, there were about one-third fewer

total complaints for death care than there were for barber and beauty

shops (654). The data indicate that BBB received far fewer complaints

about death care than about automotive repair (15,551).10 Data were not

available that would permit adjustment of these comparisons to a pertransaction basis. That is, although there were far fewer consumer

transactions concerning death care industries than concerning barber and

beauty shops or automotive repair shops, we cannot make a proportional

assessment of the complaints.

In the selected states, consumer complaint data from each state were not

available for us to review. For example, the California Public Interest

Research Group stated that the California Department of Consumer Affairs

received 603 complaints about cemeteries and 384 complaints about

 

10According to BBB data, complaints about automotive repairs comprised complaints about repairs to

the following: body and paint; brakes, shocks, and mufflers; electrical service; rebuilt and exchanged

engines; mechanicals (except transmissions); radiators and air conditioning; tires and retreads;

transmissions; wheel alignments; and windshields or glass.

Table 2: Number of Complaints to BBB

regarding Death Care-Related Goods

and Services for Fiscal Year 1997
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funeral homes for fiscal year 1995/1996. However, officials from both

organizations said the complaint data were not available to confirm those

numbers. In general, if they collected complaints, state-level organizations

were either (1) only able to provide statistics about them and not detailed

information on the nature or extent of complaints or (2) did not want to

furnish such information because of confidentiality concerns. In our

discussions with state agency officials and our review of available

documents provided, officials generally stated that they received few

complaints about death care.

Clearly consumers may not complain about the goods and services they

receive from death care providers because they are satisfied. However,

there are also factors that might inhibit complaints. Officials from

organizations at all levels told us that consumers often did not report

problems because of the emotional component of death care or because

they did not want to dwell on negative occurrences about the death of a

loved one. One FTC official said that although he was not aware of any

study to support it, anecdotally, consumers tended not to complain

because of embarrassment or ignorance. In addition, a representative of a

consumer group in Texas said that consumers are sometimes reluctant to

complain because they know they have overpaid for death care services

and do not want to reveal their mistakes to others. A BBB representative

said that consumers might believe that death care is a personal matter

rather than a consumer matter. Therefore, consumers may not think to

complain the same way they would about a defective washing machine or

automobile. Similarly, AARP officials said that AARP members are

generally not inclined to report personal problems they have experienced

with death care and that for this reason complaints are not considered to

be a good measure of customer satisfaction. Further, users of preneed

arrangements may leave no one in a position to complain.

Also, consumers may not be aware of the FTC Funeral Rule and states’

laws relating to death care industries. Without knowing about the Funeral

Rule and the laws, consumers may not know they have the right to

complain. FTC officials said that they believe that consumers are not

comparison-shopping when they enter into funeral transactions and that

the lack of comparison-shopping could be related to the lack of consumer

information about FTC and its Funeral Rule. Thus, if consumers do not get

price lists from funeral homes or cemeteries when they are supposed to,

they probably do not know that they are entitled to such lists.

Finally, in a 1978 report on funeral industry practices, FTC stated that

consumer complaints generally do not provide a complete gauge of

Reasons Consumers May Not

Complain
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Page 13 GAO/GGD-99-156 Funeral-Related Industries

consumer problems.11 The report also stated that even at the time the

Funeral Rule was proposed and under consideration, the number of

consumer complaints filed against funeral directors was modest. Despite

the low number of complaints, FTC was able to promulgate the Funeral

Rule because, among other things, it believed that

“the emotional trauma of bereavement, the lack of information, and time pressures place

the consumer at an enormous disadvantage in making funeral arrangements. These

conditions mean that the funeral consumer lacks much of the information and freedom of

choice available in most other consumer transactions.”

Over the last 5 years, FTC has taken steps, including distributing

compliance guides and working with the funeral home industry, to

promote compliance with the Funeral Rule. FTC took these steps because

it was concerned about what it perceived as a relatively low level of

compliance. For the late 1980s, FTC reported that only about one-third (36

percent) of funeral providers complied with two key requirements of the

Funeral Rule—giving consumers a general price list (GPL) and an itemized

final statement of goods and services selected. FTC based this compliance

rate on a study it did in 1987 during a review of the Funeral Rule. To

conduct its study, FTC questioned selected consumers who had arranged

funerals in the past 18 months about their experiences with the funeral

homes and what was done by the homes to comply with the Rule.

During the early years after the Funeral Rule became effective, FTC’s

enforcement of the Rule was complaint-based. FTC filed 41 civil penalty

cases from 1984 through 1994 that were based on investigations of

complaints received about individual funeral providers.12 Because of the

perceived low compliance rate based on the 1987 study results it reported

and the small number of funeral providers FTC was able to investigate in

10 years, FTC adopted a new approach to try to ensure funeral provider

compliance.

According to FTC, it mailed more than 18,000 compliance guides to

“virtually every member” of the funeral home industry throughout the

nation in June 1994. Beginning in October 1994, FTC initiated a testshopping Rule enforcement approach, called “sweeps,” targeting funeral

homes in a particular region, state, or city. Under this approach, FTC sent

FTC staff, state investigators (such as those from offices of state attorneys

 11Funeral Industry Practices, FTC, Final Staff Report (Washington, D.C.: 1978).

12 FTC filed eight additional cases from 1995 through 1996 as a result of investigations performed

earlier.

FTC’s Efforts to

Promote Compliance

Include Distributing

Guidelines, TestShopping, and Working

With Funeral Home

Industry
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Page 14 GAO/GGD-99-156 Funeral-Related Industries

general), or other volunteers (such as members of AARP) posing as

consumers to test-shop a funeral home--by simulating a funeral

transaction--and determine whether the funeral home was complying with

the Rule. An FTC official said that FTC did not investigate individual

complaints about a funeral home unless a complaint was made about a

home in an area that FTC had already targeted for test-shopping.

According to FTC, the sweeps methodology was initially designed to

quickly raise the overall compliance level with the Funeral Rule’s core

requirement: giving consumers an itemized GPL early in their meetings

with funeral home staff. FTC officials said they believed the sweeps

methodology was a more effective law enforcement tool than conducting

traditional investigations because FTC could leverage its resources to

make a bigger impact by test-shopping more funeral homes. Thus,

according to FTC officials, there was a greater likelihood that

noncompliance with the Rule would be detected.

In September 1995, NFDA proposed sponsoring a nonlitigation alternative

to civil penalty actions for Rule violations when test-shopping revealed

that funeral homes failed to provide the GPL and other price lists required

by the Rule (i.e., for caskets and outer burial containers). This proposal,

which was approved in modified form and implemented by FTC in 1996,

was called the Funeral Rule Offenders Program (FROP). Among other

things, violators of the Funeral Rule could have been offered the FROP

option. Those who chose to enroll in FROP would agree to make voluntary

payments to the U.S. Treasury equal to 0.8 percent of average annual gross

sales and participate in training organized by NFDA that was designed to

teach them how to comply with the Rule. According to FTC, the sweeps

and FROP were expected to deter funeral homes from violating the Rule

because (1) Rule violations were more likely to be detected and (2)

violations required payments that were substantial enough to be treated as

more than the mere cost of doing business as well as 5 years of compliance

training and monitoring.

Although sweeps focused solely on whether a funeral home provided a

GPL, by fiscal year 1997, the sweeps methodology had evolved so that

additional violations were considered when FTC was making the decision

about whether to offer FROP to a funeral home. In addition by fiscal year

1997, the official in each FTC region coordinating the test-shopping was to

review the GPL to ensure that it contained the disclosures and other

requirements. From October 1994 to September 1998, FTC test-shopped

958 funeral homes, or 4.3 percent of the 22,300 funeral homes in the United
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States (see app. III for information on the number of sweeps and funeral

homes shopped by state and city).

In addition, FTC has taken steps to educate consumers and funeral

industry providers about the Funeral Rule. These steps include the

publication and distribution of Funeral Rule consumer brochures and

speaking engagements before consumer and industry groups.

FTC maintains that compliance among providers covered by the Rule has

increased “substantially” over the years. However, FTC does not have a

systematic or structured process for measuring funeral homes’ compliance

so that overall conclusions can be drawn about the effectiveness of its

enforcement efforts. FTC’s efforts to measure compliance have been

limited to narrowly scoped test-shopping sweeps in selected areas. These

sweeps were not representative of the universe of funeral providers and

have not covered all elements of the Funeral Rule. We analyzed the

available records of funeral homes FTC test-shopped in fiscal years 1997

and 1998. Our analysis indicated that among the limited sample of homes

visited, compliance indeed was high for the Funeral Rule’s core

requirement--giving consumers itemized price lists early in their meetings

with funeral home staff--and somewhat lower for other elements of the

Rule we reviewed. However, it appears that FTC did not always take

action on funeral homes that potentially violated the Rule. According to

FTC, one of the primary reasons it may not have taken action was because

it exercised prosecutorial discretion.

FTC has reported a substantial increase in Funeral Rule compliance

among funeral providers from 1987, when FTC conducted its study, to

1998, the most recent year for which FTC provided compliance data.

According to FTC, since the inception of FROP, funeral home testshopping has demonstrated that compliance among funeral homes has

substantially increased. FTC press releases and documents that FTC

provided during our review indicate that test-shopping has demonstrated

that compliance with the Funeral Rule was as high as 90 percent during

fiscal years 1997 and 1998. However, although FTC has reported a

substantial improvement in Funeral Rule compliance, FTC’s approach for

measuring changes in the levels of compliance is somewhat problematic.

This is because (1) FTC’s current approach is not comparable to the

approach used to derive its baseline level of compliance, (2) compliance is

not measured in a systematic way using a statistically valid sample of the

universe of funeral providers, and (3) FTC’s reported compliance figures

deal solely with what FTC considered the core requirement and does not

measure compliance with other elements of the Rule.

Despite Its Efforts,

FTC Cannot Measure

Industrywide

Compliance With

Funeral Rule

FTC Reported Substantial

Increase in Funeral Rule

Compliance but Has Not

Developed a Systematic

Way for Determining

Compliance
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Our review of available documents and our discussions with FTC officials

showed that FTC could not substantiate whether compliance has

increased since the inception of the Rule. The methodology of FTC’s 1987

study, which FTC used to report a compliance rate of 36 percent,13 differs

from that of the post-1994 test-shopping, which it used to report a

compliance rate of 90 percent for fiscal year 1997. The two methodologies

are not comparable, and the elements of the Funeral Rule tested were not

the same. The methodology of the 1987 study involved interviewers

querying consumers who had arranged a funeral during the 18 months

preceding the inquiry about whether they were shown a GPL and provided

an itemized final statement of goods and services. It seems likely that at

least some respondents who may have been grieving and in emotional

distress would not remember whether or not they had been shown a GPL

or provided an itemized statement of goods and services selected.14 The

Funeral Rule requires that consumers be given a GPL rather than shown

one. The more recent sweeps methodology assesses whether consumers

were given a GPL. Thus, the behavior being measured by FTC’s baseline

study and the more recent sweeps methodology is different. Further, the

more recent sweeps methodology does not assess whether consumers

received an itemized statement of goods and services.

Because of the differences in methodologies and measures used to reach

the reported compliance rates, any increase reported by FTC cannot be

substantiated. In fact, the sweeps methodology, while retaining a strong

focus on whether a GPL is given, has evolved in such a manner that it

would be difficult to confirm a pattern of change and compliance resulting

from sweeps from year to year.

Also, FTC’s selection of test-shopping sites cannot be considered

representative of funeral providers nationwide. According to FTC, the goal

of Funeral Rule sweeps is to increase funeral homes’ compliance with the

Funeral Rule and to deter noncompliance. We could not assess whether

these goals were being met, nor could FTC, given the test-shopping

samples and the scope of the sweeps. To undertake its sweeps, FTC did

not select a representative sample of funeral homes to test-shop. For

 13When FTC makes comparisons between current compliance rates and past rates, it cites the 36

percent as the baseline, which combines results related to a consumer being shown the GPL as well as

receiving an itemized statement of goods and services. In relation to the GPL alone, the 1987 study

shows that 67.9 percent of respondents said that they were shown a GPL. Of those, 23.2 percent said

they received it at or near the beginning of the discussion with funeral home personnel—the point at

which the Funeral Rule requires the GPL be provided.

14According to FTC, this statement allows consumers to evaluate their selections and make any desired

changes. It is to be provided to the consumer at the end of the arrangement discussion.
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example, FTC did not test-shop funeral homes in New England in either

fiscal year 1997 or fiscal year 1998, the period for which we reviewed FTC

data. In addition, in fiscal year 1998, although FTC test-shopped funeral

homes in the West, Midwest, and Southwest, Florida was the only state in

which homes were test-shopped on the East Coast. According to FTC, the

factors it considers in selecting sites for conducting sweeps include

whether resources are available in FTC regional offices and whether

resources are available at the respective offices of state attorneys general

or AARP for partnering with FTC to carry out sweeps.

Although the Funeral Rule applies to all providers of funeral goods and

services, including certain cemeteries, FTC has test-shopped only funeral

homes. According to FTC officials, they have not identified the number of

cemeteries that are covered by the Funeral Rule or performed any sweeps

at cemeteries to date.15 Therefore, FTC has neither identified the universe

of providers of funeral goods and services that are to comply with the Rule

nor tested such providers’ compliance. Without knowing which providers

are subject to the Funeral Rule, FTC cannot select a representative sample

to determine an accurate compliance rate.

FTC’s reported compliance figures for recent years refer only to

compliance with what FTC considers to be the core Funeral Rule

requirement—giving consumers itemized price lists early in their meetings

with funeral home staff. Although sweeps in fiscal years 1997 and 1998

collected data concerning other elements, such as misrepresentations and

disclosures, FTC has confined its reporting of compliance to the core

requirement.

Our analysis of FTC records on 22 funeral home sweeps covering a total of

596 funeral homes for fiscal years 1997 and 1998 indicated that compliance

with certain elements of the Funeral Rule ranged from 79 to 99 percent,

depending on the element tested. However, it appears that FTC did not

always take action on funeral homes that potentially violated the Rule.

Available records did not always enable us to determine the reasons FTC

did or did not take action when potential Funeral Rule violations occurred.

However, FTC officials told us that the agency may not have taken action

for a number of reasons, including prosecutorial discretion, lack of staff

resources, and the evolving nature of the sweeps program.

 

15According to FTC, some proportion of all cemeteries provides funeral goods and services but may still

be outside FTC’s jurisdiction as nonprofit organizations.

Our Analysis Indicated That

Compliance Was High

Among Test-Shopped

Homes for GPLs, but FTC

Did Not Always Act on

Potential Rule Violations
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Our analysis of FTC records for funeral home sweeps for fiscal years 1997

and 1998 showed that for the items we examined, compliance was high at

the funeral homes shopped. For example, most of the homes FTC testshopped provided a GPL at the appropriate time during the discussion of

the funeral transaction, and very few homes engaged in verbal

misrepresentations of the goods and services consumers were required to

purchase. Table 3 shows the results of our review of FTC’s records

regarding the provision of the GPL at the required time for fiscal years

1997 and 1998.

Fiscal year 1997 Fiscal year 1998

Results Number Percent Number Percent

Total available filesa 256 100% 304 100%

GPL provided on time 221 86 277 91

GPL provided late or not at all 35 14 27 9

a

During FY 1997 and 1998, FTC test-shopped 292 and 304 funeral homes, respectively. FTC did not

have files available for 36 of the homes shopped for FY 1997. In addition, although FTC had files for

256 and 304 of the homes that were shopped for FY 1997 and FY 1998, respectively, 33 of the FY

1997 files and 58 of the FY 1998 files did not contain the GPLs that shoppers were to have obtained.

According to FTC officials, these GPLs were not available because two regions did not keep them.

Source: GAO analysis of FTC records.

FTC records also are to document whether the funeral home made

misrepresentations about whether embalming was required or certain

items must be purchased, depending on the type of funeral. Our analysis of

FTC’s records showed that most funeral homes did not make

misrepresentations to the test-shopper. Table 4 shows the results of our

review of FTC’s records concerning representations about embalming and

items consumers were required to buy for fiscal years 1997 and 1998.

Fiscal year 1997 Fiscal year 1998

Results Number Percent Number Percent

No misrepresentations occurred 252 98% 300 99%

Misrepresentations occurred 4 2 4 1

Source: GAO analysis of FTC records.

We also examined FTC records to test whether funeral homes provided

identifying information and disclosures on the GPL as required by the

Funeral Rule. We reviewed the GPLs that FTC made available to us to

determine whether funeral homes included (1) the requisite identifying

information, such as the address and telephone number of the funeral

home and the effective date of the GPL; and (2) selected disclosures

required by the Rule. We selected three of the six disclosures that the

Funeral Rule requires a funeral home to put on its GPL and other price

Table 3: Results of FTC Funeral Home

Sweeps for FY 1997 and FY 1998—

Provision of GPL

Table 4: Results of FTC Funeral Home

Sweeps for FY 1997 and FY 1998—

Provision of Proper Representations
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lists to focus on. These disclosures were a consumer’s right to purchase

only goods and services desired; proper representation about whether

embalming is required by the state or municipality; and, if the funeral

home offers cremation, a consumer’s right to an alternative container to a

casket for cremation. Our analysis showed that most funeral homes

included identifying information and the selected disclosures. Table 5

shows the extent to which the identifying information and the three

selected disclosures were on the GPLs from sweeps conducted from fiscal

years 1997 and 1998.

Fiscal year 1997 Fiscal Year 1998

Results Number Percent Number Percent

Total GPLs examined 223 100% 246 100%

Identifying information on GPL 199 89 235 96

Identifying information not on GPL 24 11 11 4

Selected disclosure statements on

GPL 181 81 195 79

Selected disclosure statements not

on GPL 42 19 51 21

Note: We tested for three of six disclosures that are required to be on the GPL—a consumer's right to

purchase only goods and services desired; proper representation about whether embalming is

required by the state or municipality; and, if the funeral home offers cremation, a consumer's right to

an alternative container to a casket for cremation.

Source: GAO analysis of FTC records.

We also analyzed the extent to which FTC took action on funeral homes

for which potential violations were identified during sweeps for fiscal

years 1997 and 1998. We found that FTC did not always (1) take action

when potential violations occurred or (2) document the reasons for its

actions.

Once FTC staff have noted that a Funeral Rule violation has occurred, they

can determine the appropriate response or action according to the severity

of the violation. One possible enforcement action is a letter that notifies

the funeral home that it is not in compliance with the Rule, including a

warning that future noncompliance could result in a monetary penalty;

another is a written offer for the funeral home to enter FROP as an

alternative to a law enforcement proceeding; and a third is a full law

enforcement proceeding based on the determination that the funeral home

has committed gross violations. Our analysis showed that in some cases

FTC did not use any of these options when test-shopping disclosed

potential violations. Specifically, according to its records, in fiscal years

1997 and 1998, FTC did not take action in more than half the instances in

which funeral homes had one or more potential Funeral Rule violations.

Table 5: Results of FTC Funeral Home

Sweeps for FY 1997 and FY 1998—

Identifying Information on GPL and

Selected Disclosures

It Appears That FTC Did

Not Always Act on Potential

Violations Identified During

Funeral Home Sweeps or

Document Reasons
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Table 6 shows the extent to which FTC did or did not take enforcement

action on such homes as noted during our review of FTC records on

sweeps carried out in fiscal years 1997 and 1998.

Fiscal year 1997 Fiscal year 1998

Homes with potential violations Number Percent Number Percent

FTC took action 38 43% 26 33%

FTC took no action 50 57 54 68

Total 88 100 80 100

Note 1: Potential violations comprise the following categories: GPL provided late or not at all; verbal

misrepresentations; missing identifying information; and missing disclosure statements (i.e., a

consumer's right to purchase only goods and services desired, proper representation about whether

embalming was required by the state or municipality, and a consumer's right to an alternative

container to a casket for cremation). More than one violation may have occurred at a single funeral

home.

Note 2: For fiscal year 1997, individual categories of potential violations for which FTC took no action

ranged from 17 to 75 percent. For fiscal year 1998, the range was 33 to 82 percent. We are not

identifying the percentages for individual categories in order to protect information FTC deemed to be

confidential law enforcement information.

Note 3: Percentages do not total 100 due to rounding.

Source: GAO analysis of FTC records.

Because other factors could influence FTC's decision to pursue a case, an

indication in its records of a potential violation does not necessarily mean

that FTC would be expected to take an enforcement action. However,

available records did not always allow us to identify the specific reasons

FTC did not act on potential violations of the Funeral Rule. When records

indicated that FTC took action on a potential Rule violation, we were not

always able to determine why. In addition, FTC’s letters to the funeral

homes in violation did not always provide the reason FTC took action, a

practice that is suggested in FTC guidance on responding to a violation.

FTC headquarters officials told us that they were uncertain as to the exact

reasons why regional staff did not act on individual potential violations.

However, FTC’s Funeral Rule Coordinator and the Assistant Director for

Marketing Practices told us that there are numerous reasons FTC would

not take action against a funeral home, even though the documentation on

the home may indicate that a violation occurred. For instance, the Funeral

Rule Coordinator said that the FTC official reviewing the test-shopping

record may have asked further questions of the test-shopper and

determined that the Rule had not really been violated. She and the

Assistant Director stated that they were uncertain why that information

was not documented.

Table 6: Results of FTC Funeral Home

Sweeps for FY 1997 and FY 1998—

Extent of FTC Enforcement Actions

Against Funeral Homes That Had One or

More Potential Violations
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FTC officials also told us that another reason an action may not have been

taken is that FTC staff have discretion as to whether they should pursue a

potential violation on the basis of the likelihood that FTC staff can make a

solid case. In comments on a draft of this report, FTC’s Chairman also

stated that FTC can exercise prosecutorial discretion when deciding to

take action on any individual case. During our review, FTC officials

pointed out that FTC policy is to pursue full enforcement actions only if

there is sufficient evidence to file the matter in federal court. These

officials also told us that they did not believe that some types of violations,

particularly those for missing identifying information, warranted any type

of action because, in isolation, they were not considered substantive.

Nonetheless, the officials acknowledged that such violations as those

involving missing disclosures would probably warrant a compliance letter,

and they could not explain why such a letter had not been sent in certain

cases. They acknowledged that a more consistent procedure for use of

compliance letters was needed.

FTC headquarters officials also told us that FTC staff may not have taken

action or documented the reasons because the sweeps program is still

evolving. They said that during the early sweeps, such as those conducted

during 1995, FTC sweeps focused on the key requirement of the Rule—

having a GPL and giving it at the right time. By fiscal year 1996, FTC staff

also started to examine whether two other lists—the outer burial container

list and the casket price list—were provided to test-shoppers. And by fiscal

year 1997, test-shoppers were instructed to also gather information on

misrepresentations about embalming and required purchases during the

funeral consultation. Also in that year, FTC regional offices were

instructed to review GPLs to ensure that the required disclosures were

included. However, given the sweeps methodology, FTC cannot determine

whether funeral homes were complying with certain elements of the

Funeral Rule, such as accuracy of prices and the provision of a statement

of goods and services selected.

In fact, FTC’s guidance for conducting sweeps instructs FTC regional staff

to consult with the Funeral Rule Coordinator in the Division of Marketing

Practices at FTC headquarters in making determinations about such things

as a GPL being in compliance with the Rule or the timing of the

presentation of the GPL. According to the guidance, FTC’s Funeral Rule

Coordinator is to maintain records regarding these determinations so that

they may be instructive in subsequent sweeps and cases. The guidance

also points out that advising the Funeral Rule Coordinator about actions,

such as sending a compliance letter, “will allow the development of a

consistent response to these violations.”
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FTC headquarters officials acknowledged that they had not done an

analysis of the documentation on sweeps as we had. They said that when

regions are doing sweeps, staff from the Division of Marketing Practices

hold conference calls with regional staff to discuss issues that arise during

the sweeps. FTC also provided documentation that indicated such

communication between headquarters and regions occurred. However,

FTC headquarters officials said that headquarters staff viewed Funeral

Rule sweeps as primarily a regional program and assumed that regional

offices would be consistent in their implementation of the program based

on the training provided. FTC was unable to provide evidence of historical,

systematic documentation of sweeps decisionmaking and results. The lack

of such documentation could indicate weak internal controls over the

Funeral Rule program. Among other things, such controls are to help

ensure that the objectives of the program are achieved.

The five selected states differed in their approaches to protecting

consumers who deal with funeral homes and cemeteries and make

preneed arrangements. Differences were most notable concerning the (1)

regulatory structure of the five states and (2) requirements that these

states placed on death care providers. However, the five states also had

similarities in their approaches to protecting consumers who engage in

death care transactions. For example, the five states all had licensing and

minimum education requirements that funeral providers were required to

meet. Each of the states also had laws and regulations that required

funeral providers to disclose price and other information to consumers

similar to the requirements of FTC’s Funeral Rule. Appendix IV contains

additional information on the selected states’ laws and regulations and the

oversight of funeral homes and cemeteries.

The selected states had various approaches for regulating funeral homes.

For example, in three of the states (Florida, Maryland, and Texas)

regulatory agencies with responsibilities for funeral homes were governed

by a board or a commission made up of industry practitioners and

consumer representatives. In the other two states (California and New

York), the industry was regulated by a government agency but not by a

board or a commission.16 Another difference among the states was their

approach to inspections of funeral homes. Two of the states (Florida and

Maryland) required that all funeral homes within the state be inspected on

an annual basis. In Maryland, for example, inspections included reviews of

required price lists, a completed funeral services contract, a preneed

contract form, and funeral home facilities. Texas law required biennial

 

16New York’s Bureau of Funeral Directing, which regulates funeral homes, has an advisory board.

Selected States Varied

in Their Approaches to

Protecting Consumers

Who Arrange Death

Care

Funeral Homes
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inspections of funeral homes.17 California and New York did not have an

annual inspection requirement and took a more complaint-driven approach

to conducting inspections.

The five states also had some key differences among their requirements for

funeral providers that affected consumers. For example, two of the states

(California and Texas) required that funeral directors make available to

consumers a state-produced brochure answering commonly asked

questions concerning death care, including information on where to send

complaints. Maryland and New York have produced consumer brochures

but had no requirement that funeral homes make them available to

consumers. Florida did not produce a brochure.

Similarities also existed among the five states’ regulatory approaches. For

example, the five states all had licensing requirements for funeral directors

and embalmers and minimum education requirements that these funeral

providers were required to meet. In addition to FTC’s Funeral Rule, each

of the states had state requirements similar to those of the Rule. For

example, each state (1) required that funeral directors provide an itemized

price list to consumers; and (2) prohibited funeral directors from making

misrepresentations, including falsely representing that embalming is

required by law.

The five states also differed in their approaches to regulation and oversight

of those cemeteries within their jurisdictions, such as nonreligious, forprofit cemeteries (see app. IV for details on cemeteries covered by the

selected states). For example, in Maryland the office with regulatory

responsibility for cemeteries was administered by a single individual with

the authority to perform the numerous functions of the office. In New

York, cemeteries were regulated by a board consisting of the Secretary of

State, the Attorney General, and the Commissioner of Health. The selected

states also differed in terms of the requirements and restrictions placed on

cemeteries, including restrictions on what goods and services cemeteries

could sell. In addition, New York was unique among the five states in that

it required that cemeteries under its jurisdiction be operated on a not-forprofit basis.

In each of the selected states, the state regulatory agencies responsible for

cemeteries had jurisdiction over only a fraction of the total number of

cemeteries in the state because certain types of cemeteries, such as

religious and municipal cemeteries, were exempt from state regulation.

 

17As of September 1, 1999, Texas law requires that inspections be conducted annually.

Cemeteries
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Oversight of cemeteries is conducted primarily at the state or local level.

FTC’s Funeral Rule applies only to certain cemeteries that sell both funeral

goods and services.

The selected states also differed in their treatment of preplanned, prepaid

funeral transactions, which are commonly called preneed arrangements

and are regulated by state law. Although each of the five states had

promulgated some sort of regulation of preneed contracts, the laws varied

widely. Differences in the states’ statutes included the percentage of

preneed sales proceeds that each state required to be placed in trust and

limitations on where proceeds from preneed contracts may be invested. In

addition, two of the five states (Florida and Texas) required sellers of

preneed contracts to pay a fee to a state consumer protection fund for

every preneed contract they sold. The purpose of such a fund is to

compensate consumers for situations in which sellers of preneed contracts

are later unable to perform the terms of the contract. Appendix V contains

additional information on preneed arrangements in general and in the

selected states.

Our review found that although some data on problems that consumers

experienced with various aspects of death care were available,

comprehensive information on consumer complaints that would indicate

the overall nature and extent of such problems was not. The organizations

we contacted generally stated that the number of complaints about death

care was low compared to other consumer issues. Among the reasons

these organizations gave for the relatively low number of complaints

included the personal or emotional nature of the death care situation.

State and federal governments have laws and regulations to protect

consumers in arranging death care transactions. For the five states we

focused on, we found differences in their regulatory structures for death

care providers and in their requirements for those providers; we also found

similarities, including licensing and minimum education requirements for

funeral providers. In addition, all five states had laws and regulations that

required funeral providers to disclose price and other information to

consumers, similar to the requirements of FTC’s Funeral Rule.

At the federal level, FTC’s Funeral Rule was designed to protect

consumers when arranging death care transactions. FTC has taken steps,

including distributing compliance guides to funeral homes and working

with the funeral home industry, intended to ensure compliance with the

Funeral Rule. However, FTC cannot, with any reasonable assurance,

report that there is high nationwide compliance with the Rule or a

Preneed Arrangements

Conclusions
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substantial increase in compliance compared to a decade ago, because

FTC does not have a systematic or structured process for measuring

funeral homes’ compliance so that overall conclusions can be drawn about

their actual compliance with the Rule and the effectiveness of FTC’s

enforcement strategies. FTC’s efforts to measure compliance have been

limited to narrowly scoped test-shopping sweeps in selected areas—that

is, they are not representative of the universe of funeral providers and do

not cover all elements of the Rule. We did not do an analysis on the

resources needed for FTC to establish a nationwide compliance rate.

However, a more strategic selection of sites and a more systematic

approach to conducting sweeps and analyzing results could provide more

convincing evidence of the overall level of compliance with the Funeral

Rule.

Although our work indicated that indeed compliance was high among

funeral homes that FTC test-shopped in fiscal years 1997 and 1998 for the

three elements of the Funeral Rule we reviewed, it appears that FTC did

not always take enforcement action against funeral homes that potentially

violated the Rule and did not always document the reasons. When records

indicated that FTC took action on a potential Rule violation, we were not

always able to determine why. In addition, FTC’s letters to the funeral

homes in violation did not always provide the reason FTC took action, a

practice that is suggested in FTC guidance on responding to a violation.

Just as any agency’s management is responsible for ensuring its agency’s

compliance with laws and regulations, it also is responsible for

establishing effective internal controls. In the case of the Funeral Rule,

FTC promulgated the Rule and is responsible for establishing effective

internal controls for ensuring consistency in its (1) determinations of

whether violations of the Rule’s requirements occurred and (2)

documentation on the specific reasons FTC did or did not act on such

violations. Although FTC had guidance on how determinations regarding

violations were to be made, the guidance was not followed consistently, as

evidenced by the lack of documentation explaining whether and why FTC

took action for some potential violations and not others.

To help assess the overall effectiveness of FTC’s Funeral Rule

enforcement strategy, we recommend that the Chairman of FTC (1) review

possible approaches to determine the most cost-effective means for FTC

to conduct sweeps that would result in both a more convincing sample of

funeral providers and a broader analysis of the various requirements of the

Funeral Rule and (2) develop and implement a plan for carrying out such

an approach in a systematic manner.

Recommendations to

the FTC Chairman
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To ensure that FTC can consistently (1) determine whether violations of

the Rule’s requirements occurred and (2) document the specific reasons

FTC did or did not act on such violations, we recommend that the

Chairman of FTC train FTC staff on the specific standards needed for a

consistent and acceptable level of documentation.

We received written comments on a draft of this report from the FTC

Commissioners in a letter dated August 25, 1999 (see app. VI). These

comments are contained in a letter signed by the Chairman of FTC, by the

direction of the Commission, and in a dissenting statement by one of FTC's

Commissioners. According to the Chairman's letter, the Commission

voted 3 to 1 to issue this response. The dissenting statement reflected the

views of the one commissioner who voted against submitting the response.

FTC did not specifically comment on our recommendations. However, the

letter signed by the Chairman discussed three points under separate

headings: (1) "Test Methodology" for measuring funeral providers'

compliance with FTC's Funeral Rule, (2) enforcement practices, and (3)

other comments. Under the first heading of test methodology, the

Chairman’s letter stated that the report "incorrectly suggests that the FTC

cannot document a nationwide increase in compliance with the core

requirement of the Funeral Rule and that [FTC has] tested compliance in

'narrowly scoped test-shopping sweeps.'" As we have stated in the report,

we believe that because of the differences among the methodologies and

the elements FTC used in the 1980s and in the 1990s to measure

compliance with the Funeral Rule, the assessed methodologies do not

yield results that are comparable. Therefore, any increase in compliance

reported by FTC cannot be substantiated. Also, although FTC has testshopped 958 funeral homes in its 32 sweeps of 22 states and the District of

Columbia over a 4-year period,18 FTC selected these sites and the homes to

be shopped on the basis of the availability of resources from FTC regional

offices and offices of partnering organizations, not as an appropriate

sample from which to assess compliance. Indeed, FTC has not identified

the universe of providers of funeral goods and services that are to comply

with the Rule. Thus, we do not believe that FTC is positioned to draw

overall conclusions about actual compliance with the Rule. As we

recommended, FTC would benefit from an approach that used a more

convincing sample of funeral providers for conducting sweeps and a

broader analysis of Funeral Rule requirements.

 18The letter signed by the Chairman cites table III.1 in Appendix III and points out that “the Commission

has conducted 32 sweeps in 24 states.” In fact, table III.I and FTC’s source document lists 22 states and

the District of Columbia.

Agency Comments and

Our Evaluation
B-281214

Page 27 GAO/GGD-99-156 Funeral-Related Industries

Under the second heading of enforcement practices, the Chairman’s letter

stated that the report correctly notes that FTC has "not pursued every

potential violation of each provision of the Rule." The Chairman’s letter

continues to state that "merely focusing on quantity of prosecutions does

not present an accurate picture of the impact of the Commission's

activities." We do not find fault with the statement in the Chairman’s letter

that "the decision to take action in any individual case is the result of the

exercise of prosecutorial discretion, which is no different from the sort of

decisionmaking and resource allocation in which all law enforcement

agencies must engage." However, in FTC's case, it did not take action on

more than half of all funeral homes identified in sweeps for fiscal years

1997 and 1998 as having potential Funeral Rule violations. As the one

dissenting Commissioner pointed out in his statement, the proportion of all

the potential violations for which FTC did not act is worthy of review to

“confirm that they are not likely to cause substantial consumer injury.”

Because available records did not always allow us to identify the specific

reasons FTC did or did not act on potential violations of the Funeral Rule,

we could not determine the impact of such inaction on consumers.

Finally under the third heading of other comments, the Chairman’s letter

stated that "we believe that GAO fairly points out that some improvements

are needed in the Funeral Rule program's record keeping." According to

the Chairman’s letter, FTC officials have said that a review of FTC staff’s

procedures has begun. We applaud FTC’s efforts to review its procedures

and believe that FTC’s acknowledgement of needed improvements to the

program’s recordkeeping is an appropriate first step in establishing

effective internal controls over the Funeral Rule program. By taking this

step and training staff as we recommended, FTC should be better

positioned to ensure consistency in its (1) determinations of whether

violations of the Rule’s requirements occurred and (2) documentation of

the specific reasons it did or did not act on such violations. Furthermore,

we believe that these efforts may better position FTC to more effectively

manage the Funeral Rule program and systematically analyze the extent to

which certain Rule violations have the potential for substantial consumer

injury.

In his dissenting statement, the one Commissioner who voted against

submitting the response agreed with many of the points made by his

colleagues, including that the decision to not take action on individual

cases appears to have resulted from the exercise of prosecutorial

discretion. However, he stated he did not believe the response

appropriately addressed the concerns raised in our draft report. Among

other things, he said that (1) FTC should take great care to avoid stating or
B-281214

Page 28 GAO/GGD-99-156 Funeral-Related Industries

implying that it is in a position to conclude that a statistically valid

nationwide projection of compliance can be made, and (2) a careful

analysis of the concerns raised in the draft would have better served the

public interest to confirm his suspicions that FTC does not have any

substantial enforcement problems.

As arranged with your offices, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from the

date of this letter. At that time, we will send copies of this report to the

Honorable Robert Pitofsky, Chairman of the Federal Trade Commission;

Judd Gregg, Chairman, and Ernest F. Hollings, Ranking Minority Member,

of the Subcommittee on Commerce, Justice, State, the Judiciary, and

Related Agencies, Senate Appropriations Committee; John Ashcroft,

Chairman, and Richard H. Bryan, Ranking Minority Member,

Subcommittee on Consumer Affairs, Foreign Commerce and Tourism,

Senate Committee on Science, Commerce, and Transportation; Harold

Rogers, Chairman, and Jose E. Serrano, Ranking Minority Member, of the

Subcommittee on Commerce, Justice, State, the Judiciary, and Related

Agencies of the House Appropriations Committee; and W.J. Tauzin,

Chairman, and Edward J. Markey, Ranking Minority Member,

Subcommittee on Telecommunications, Trade and Consumer Protection,

House Committee on Commerce. We will also make copies available to

other interested parties upon request.

Please contact me or John F. Mortin on (202) 512-8676 if you or your staff

have questions. Major contributors to this report are acknowledged in

appendix VII.

Laurie E. Ekstrand

Associate Director

Federal Management

and Workforce Issues
Page 29 GAO/GGD-99-156 Funeral-Related Industries
Page 30 GAO/GGD-99-156 Funeral-Related Industries

Contents

1 Letter

Appendix I 34

FTC's Funeral Rule

Appendix II 40

Objectives, Scope, and

Methodology

Appendix III 46

FTC Funeral Home

Sweeps

47

Funeral Homes 47

Cemeteries 52

Appendix IV

Information on

Funeral Homes and

Cemeteries in Selected

States

59

Preneed Arrangements 59

Regulation of Preneed Arrangements in the Five Selected

States

60

Appendix V

Information on

Preneed Arrangements

in the Selected States

Appendix VI 67

Agency Comments

Appendix VII 72

GAO Contacts and

Staff

Acknowledgments
Contents

Page 31 GAO/GGD-99-156 Funeral-Related Industries

Table 1: Average Cost of Most Commonly Selected

Funeral Items, as of January 1997

4

Table 2: Number of Complaints to BBB regarding Death

Care-Related Goods and Services for Fiscal Year 1997

11

Table 3: Results of FTC Funeral Home Sweeps for FY

1997 and FY 1998—Provision of GPL

18

Table 4: Results of FTC Funeral Home Sweeps for FY

1997 and FY 1998—Provision of Proper

Representations

18

Table 5: Results of FTC Funeral Home Sweeps for FY

1997 and FY 1998—Identifying Information on GPL and

Selected Disclosures

19

Table 6: Results of FTC Funeral Home Sweeps for FY

1997 and FY 1998—Extent of FTC Enforcement

Actions Against Funeral Homes That Had One or More

Potential Violations

20

Table III.1: Number and Location of Funeral Homes FTC

Test-Shopped by Date of Sweep

46

Table IV.1: California Funeral Homes—Regulation,

Oversight, and Consumer Information

47

Table IV.2: Florida Funeral Homes—Regulation,

Oversight, and Consumer Information

48

Table IV.3: Maryland Funeral Homes—Regulation,

Oversight, and Consumer Information

49

Table IV.4: New York Funeral Homes—Regulation,

Oversight, and Consumer Information

50

Table IV.5: Texas Funeral Homes—Regulation, Oversight,

and Consumer Information

51

Table IV.6: California Cemeteries—Regulation, Oversight,

and Consumer Information

52

Table IV.7: Florida Cemeteries—Regulation, Oversight,

and Consumer Information

54

Table IV.8: Maryland Cemeteries—Regulation, Oversight,

and Consumer Information

55

Table IV.9: New York Cemeteries—Regulation, Oversight,

and Consumer Information

56

Table IV.10: Texas Cemeteries—Regulation, Oversight,

and Consumer Information

57

Table V.1: California Regulation of Preneed

Arrangements

60

Table V.2: Florida Regulation of Preneed Arrangements 62

Tables

Table V.3: Maryland Regulation of Preneed Arrangements 63
Contents

Page 32 GAO/GGD-99-156 Funeral-Related Industries

Table V.4: New York Regulation of Preneed

Arrangements

64

Table V.5: Texas Regulation of Preneed Arrangements 65

Figure 1: Percent Change in CPI From Previous Year for

Funeral Expenses Compared With CPI for All Items

From 1990 Through 1998

Figures 5

Abbreviations

BBB Better Business Bureau

BLS Bureau of Labor Statistics

CCSC Cemetery Consumer Service Council

CFP Cemetery and Funeral Programs

CIS Consumer Information System

CPI Consumer Price Index

DCI data collection instrument

DLLR Department of Labor, Licensing, and Regulation

FAMSA Funeral and Memorial Society of America

FDIC Federal Deposit Insurance Corporation

FROP Funeral Rule Offenders Program

FSCAP Funeral Service Consumer Assistance Program

FTC Federal Trade Commission

GPL general price list

NFDA National Funeral Directors Association
Page 33 GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule

Page 34 GAO/GGD-99-156 Funeral-Related Industries

Source: COMPLYING

WITH THE FUNERAL

RULE: A Business Guide

Produced by the Federal

Trade Commission, August

1995; pp. 45-50.
Appendix I

FTC's Funeral Rule

Page 35 GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule

Page 36 GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule

Page 37 GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule

Page 38 GAO/GGD-99-156 Funeral-Related Industries
Appendix I

FTC's Funeral Rule

Page 39 GAO/GGD-99-156 Funeral-Related Industries
Appendix II

Objectives, Scope, and Methodology

Page 40 GAO/GGD-99-156 Funeral-Related Industries

Our objectives were to (1) describe the availability of information on the

nature and extent of consumer complaints about the death care industry,

(2) describe and assess the Federal Trade Commission’s (FTC) efforts to

ensure compliance with its Funeral Rule, and (3) provide information on

selected state governments’ roles in protecting consumers in their

transactions with the death care industry. We did our work primarily at

FTC in Washington, D.C., and Dallas, TX; and at state funeral and cemetery

regulatory offices in five states—California, Florida, Maryland, New York,

and Texas. We selected California, Florida, New York, and Texas because

these states had the highest number of deaths of all 50 states in 1998. We

selected Maryland because it had recently established a state regulatory

agency with oversight responsibility for all but certain religious nonprofit

cemeteries and because of Maryland’s close proximity to our headquarters

office. As agreed with your staff, we focused our efforts on these five

states because of time and staffing constraints. Once we selected the

states, we concentrated our efforts at the agencies that we identified as

those most likely to have responsibility for consumer-related death care

matters in their respective states.

In addition, we interviewed representatives of selected national, state, and

local industry trade and regulatory associations and consumer advocacy

groups that deal with death care issues. Although we recognize that there

are numerous organizations that are involved in one or many components

of death care, we judgmentally selected the organizations to contact

because of time constraints, staff availability, and travel costs. Although

regulatory bodies may exist in each of the selected states for monuments,

crematories, and other funeral industries, we focused our efforts on

regulatory bodies for funeral homes, cemeteries, and preneed

arrangements. In consideration of these factors, in addition to the state

agencies responsible for death care oversight and regulation, we met with

representatives of various industry and consumer groups. At the national

level, we contacted the following organizations: AARP; the Better Business

Bureau (BBB); the Cremation Association of North America; the Funeral

and Memorial Society of America (FAMSA); the International Cemetery

and Funeral Association; the National Alliance of Life Insurance

Companies; the National Association of Attorneys General; the National

Association of Insurance Commissioners; the National Funeral Directors

Association (NFDA); the North American Cemetery Regulators

Association; the Insurance and Research Publications Division of Conning

& Company; and the editor of Preneed Perspective.
Appendix II

Objectives, Scope, and Methodology

Page 41 GAO/GGD-99-156 Funeral-Related Industries

At the state level, we contacted the following organizations by state:

• California—State Offices: Office of the Attorney General, California

Department of Justice; Cemetery and Funeral Programs, California

Department of Consumer Affairs; and California Department of

Insurance.

Consumer Groups and Industry Representatives: California Public

Interest Research Group; Forest Lawn Memorial Parks and Mortuary;

Association Resource Center, a management company for the California

Funeral Directors Association.

• Florida—State Offices: Bureau of Life and Health Insurer Solvency and

Market Conduct Review, Division of Insurer Services, Florida

Department of Insurance; Bureau of Funeral and Cemetery Services,

Division of Finance, Office of the Comptroller; Board of Funeral

Directors and Embalmers, Division of Professions, Florida Department

of Business and Professional Regulation; Office of the Attorney General.

Consumer Groups and Industry Representatives: Florida Funeral and

Memorial Society; Florida Funeral Directors Association.

• Maryland—State Offices: State Board of Morticians, Department of

Health & Mental Hygiene; Office of Cemetery Oversight, Division of

Occupational and Professional Licensing, Department of Labor,

Licensing, and Regulation; Office of the Attorney General; Life and

Health Section, Maryland Insurance Administration.

Consumer Groups and Industry Representatives: Memorial Society of

Maryland; Maryland State Funeral Directors Association; Loudon Park

Funeral Home and Cemetery.

• New York—State Offices: Division of Cemeteries, State of New York

Department of State; Bureau of Funeral Directing, State of New York

Department of Health; Office of the Attorney General.

Consumer Groups and Industry Representatives: Memorial Society of

Hudson-Mohawk Region, the Rochester Memorial Society, and the

Syracuse Memorial Society; L. F. Sloane Consulting Group (a cemetery

representative); New York Funeral Directors Association.

• Texas—State Offices: Texas Funeral Service Commission; Special

Audits Division, Texas Department of Banking; Texas Department of

Insurance; Office of the Attorney General.

Consumer Groups and Industry Representatives: Austin Memorial and

Burial Information Society; Texas Funeral Directors Association;
Appendix II

Objectives, Scope, and Methodology

Page 42 GAO/GGD-99-156 Funeral-Related Industries

Greenwood Funeral Homes and Cemetery.

At each of the nongovernmental organizations we contacted, we spoke

with officials regarding death care issues and collected and reviewed

available documents and studies on such things as industry sales and

revenues, consumer issues associated with the sales of death care goods

and services, and consumer-related federal and state regulatory issues. We

also did a literature and Internet search for information on issues affecting

death care industries and consumers and reviewed pertinent books,

magazines, trade publications, and periodicals regarding consumer

concerns with those industries.

To describe the availability of information on the nature and extent of

consumer complaints about the death care industry, we met with FTC

officials; representatives of the aforementioned national trade, regulatory,

and consumer advocacy organizations; and state regulatory officials in the

five states. At FTC, we reviewed data from FTC’s Consumer Information

System (CIS), which became fully operational in the fall of 1997 and is

FTC’s database of consumer complaints, inquiries, and requests for

information. The CIS database contained a total of about 200 categories

within which consumer complaints were included. The categories in CIS

covered a wide range of topics, such as (1) creditor debt collection; (2)

home repair; (3) investments; (4) health; and (5) leases for various

products and services, such as automobiles and furniture. We identified

one of those categories—funeral services—as the one that could most

likely provide us information on consumers’ complaints about death care

issues. FTC provided data from CIS showing 834 records for fiscal year

1998. We then sorted the records into individual categories and analyzed

the data to determine the extent and nature of complaints received by

FTC. In addition, at the other organizations we contacted, we discussed

with officials the extent to which they may have collected and maintained

readily available data on consumers’ problems concerning death care

issues and the types and extent of complaints they received. We also

discussed with them the various reasons why such information was not

readily available.

To describe and assess FTC’s efforts to ensure compliance with its Funeral

Rule, we met with FTC officials to discuss regulatory practices,

enforcement, and oversight of death care industries. We also obtained and

reviewed pertinent laws, regulations, and FTC documents pertaining to the

history of FTC’s efforts to promulgate the Rule and enforce compliance. In

addition, we reviewed FTC’s manual for initiating, implementing, and

concluding Funeral Rule test-shopping, sometimes called Funeral Rule
Appendix II

Objectives, Scope, and Methodology

Page 43 GAO/GGD-99-156 Funeral-Related Industries

sweeps; and we analyzed FTC records on funeral provider compliance

with the Funeral Rule for fiscal years 1997 and 1998. Specifically, for these

fiscal years, we requested the universe of records (596) that documented

the results of FTC’s Funeral Rule test-shopping efforts at funeral homes in

various locations across the country. FTC could not provide 36 files

because the regional office performing the sweep did not retain those

records when a test-shopper did not find a problem.

For each of the 560 available files, we used a standardized data collection

instrument (DCI) that was designed to capture such information as

whether the shopper received a general price list (GPL) or whether

specific misrepresentations were made about matters like embalming. We

also used the DCI to compile data from the available GPLs provided by

funeral homes during the test-shopping. FTC could provide price lists for

only 469 test-shops. FTC officials could not fully explain why the GPLs

were missing from the records but stated several possible reasons.

According to FTC officials, in one regional office, an FTC official used the

GPLs from previous test-shopping experiences to train future testshoppers. Also, an FTC official speculated that perhaps other price lists

were missing because the GPL was not received from the test-shopper, or

FTC lost the GPL from the records. We reviewed the available GPLs to

determine whether identifying information and disclosures contained on

them was required by the Funeral Rule. The identifying information we

looked for was the name, address, and telephone number of the funeral

home; the caption “General Price List”; and the effective date of the GPL.

We also reviewed the GPL for three required disclosure statements:

• “The goods and services shown below are those we can provide to our

customers. You may choose only the items you desire. However, any

funeral arrangements you select will include a charge for our basic

services and overhead.1

 If legal or other requirements mean you must

buy any items you did not specifically ask for, we will explain the reason

in writing on the statement we provide describing the funeral goods and

services you selected.”

• “Except in certain special cases, embalming is not required by law.

Embalming may be necessary, however, if you select certain funeral

arrangements, such as a funeral with viewing. If you do not want

 1

If customers cannot decline the basic services fee, the funeral provider must include this sentence.

The provider may add the phrase “and overhead” after the word “services” in this sentence if the fee

includes the recovery of overhead costs.
Appendix II

Objectives, Scope, and Methodology

Page 44 GAO/GGD-99-156 Funeral-Related Industries

embalming, you usually have the right to choose an arrangement that

does not require you to pay for it such as direct cremation or immediate

burial.”2

• “If you want to arrange a direct cremation, you can use an alternative

container. Alternative containers encase the body and can be made of

materials like fiberboard or composition materials (with or without an

outside covering). The containers we provide are (specify containers).”3

The Funeral Rule also requires that the GPL contain other disclosures,

such as a casket price list statement; and requires itemization of prices for

certain goods and services, such as immediate burial. We did not review

individual GPLs for compliance with these other items because of time and

staffing constraints.

In addition, we used the DCI to record what action FTC took, if any, in

regard to potential Funeral Rule violations. We then analyzed these data to

determine the number and type of potential Funeral Rule violations that

may have occurred and whether FTC acted on them. We considered FTC

to have taken action if it had sent a letter (1) to the funeral home advising

the home of noncompliance and warning that additional action could

occur if the home did not comply in the future, (2) offering the funeral

provider the opportunity to enter NFDA’s Funeral Rule Offender’s Program

(FROP) rather than be subject to civil penalty actions, or (3) notifying the

funeral home that it was beginning full law enforcement proceedings on

the basis of gross violations of the Funeral Rule. We did not assess the

effectiveness of FROP, a program sponsored by FTC and NFDA.4

 We

reviewed the letters FTC sent to the funeral homes in question, when

available, to determine the reason FTC took action on potential violations.

To provide information on selected state governments’ roles in protecting

consumers in their transactions with the death care industry, we spoke

with officials from the previously mentioned state agencies that have

responsibility for regulation and oversight of death care in those states. At

 

2

 The phrase “except in certain special cases” need not be included in this disclosure if state or local

law in the area(s) where the provider does business does not require embalming under any

circumstances.

3

 We took into account the fact that if the funeral home does not arrange direct cremations, this

statement does not need to be included on the GPL.

4

FROP, which FTC approved and implemented in 1996, was designed to penalize Funeral Rule

offenders and educate them about the Rule. Participants enter the program for 5 years, and not enough

time has lapsed to determine if FROP has been successful in stemming Funeral Rule violations among

its participants.
Appendix II

Objectives, Scope, and Methodology

Page 45 GAO/GGD-99-156 Funeral-Related Industries

these organizations, we collected pertinent laws, regulations, and

documents covering three areas—funerals, cemeteries, and preneed

funeral arrangements—and analyzed these laws, regulations, and

documents with a focus on consumer protection issues in each

jurisdiction. We also administered a DCI to discuss regulatory and

consumer protection issues with appropriate state officials and to ensure

that we obtained consistent information from each of the organizations.

The DCI covered such topics as preneed funeral and burial arrangements,

including trusts and insurance; at-need funeral and cemetery

arrangements; and consumer affairs and consumer awareness in the state

regarding both preneed and at-need death care arrangements. We

contacted responsible officials from the regulatory bodies in the five states

to verify information on the states.

We did our work between July 1998 and July 1999, in accordance with

generally accepted government auditing standards.
Appendix III

FTC Funeral Home Sweeps

Page 46 GAO/GGD-99-156 Funeral-Related Industries

The following table contains information on the 32 sweeps FTC carried out

since it began test-shopping funeral homes to ensure their compliance with

the Funeral Rule and the number of funeral homes shopped by state and

city.

Date State City Number of funeral

homes test-shopped

October 1994 FL Tampa 26

December 1994 DE Statewide 22

January 1995 TN Nashville 23

February 1995 MS Jackson, Yazoo City,

Vicksburg

18

March 1996 OH Columbus 32

May 1996 CO Denver 26

June 1996 MA Statewidea 40

June 1996 OK OK City 26

July 1996 D.C. Washington 30

September 1996 IL Chicago area 119

January 1997 NJ Statewide 35

June 1997 AR Little Rock 21

July 1997 CA San Joseb 11

July 1997 WA Spokane 4

July-September 1997 CO Pueblo, Colorado

Springs

22

August 1997 PA Philadelphia area 55

August 1997 GA Atlanta 19

August 1997 CA Southern CA 13

August 1997 WA Seattle 17

September 1997 TX Fort Worth 23

September 1997 IA Statewide 62

September 1997 CA East Bay 10

December 1997 CA Sacramento 22

January 1998 OK Tulsa 27

May 1998 CA Marin County 8

June 1998 CA Santa Rosa 5

August 1998 MI Detroit, Lansing,

Grand Rapids

42

August 1998 FL Pinellas, Hillsboro,

Leon counties

80

August 1998 UT Salt Lake City 32

September 1998 MN Minneapolis-St.Paul,

Rochester, Duluth,

Saint Cloud

55

September 1998 NV Las Vegas, Reno,

Carson City

22

September 1998 LA Baton Rouge 11

Total 958

a

This sweep included six cities.

b

This sweep included the South Bay area of CA.

Table III.1: Number and Location of

Funeral Homes FTC Test-Shopped by

Date of Sweep
Appendix IV

Information on Funeral Homes and

Cemeteries in Selected States

Page 47 GAO/GGD-99-156 Funeral-Related Industries

This appendix contains information about the regulation and oversight of

funeral homes and cemeteries in the five selected states—California,

Florida, Maryland, New York, and Texas. It also discusses state-required

information that is to be provided to consumers about funeral homes and

cemeteries.

Appendix V discusses preneed funeral arrangements and provides

information on the regulation of preneed arrangements in the selected

states.

The Cemetery and Funeral Programs (CFP) of the California Department

of Consumer Affairs regulates both the funeral and cemetery industries in

California.

Table IV.1 provides information on the regulation and oversight of

California funeral homes and shows state requirements regarding

consumer information.

Category Yes No Comments

Law or regulation

Licensing requirement for funeral directors, embalmers, and

funeral establishments

X All three licenses must be renewed on an

annual basis.

Requirement that funeral directors complete continuing

education credits

X Licensees are required to complete 14 hours of

continuing education every 2 years.

Requirement that state regulatory office be notified of change

of funeral home ownership

X

Requirement prohibiting the combined ownership of funeral

homes and cemeteries

X

Requirement that low-cost caskets be included as part of

funeral home displays

X All caskets must be either physically displayed

in the casket selection room or displayed

photographically.

Oversight

Required annual inspections of all funeral homes X A CFP official stated that the office does not

inspect all of the state’s funeral homes on an

annual basis, but it conducts unannounced

inspections of about 200 of the state’s

approximately 800 funeral homes. He further

said that although complaints often generate

inspections, CFP maintains an ongoing random

inspection program.

Funeral Homes

California

Table IV.1: California Funeral Homes—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 48 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about funeral goods and

services

X California law requires that CFP produce and

make available to funeral establishments a

consumer guide for funeral and cemetery

purchases. Funeral establishments are

required to prominently display and make

available this guide.

Requirement that all funeral contracts contain state regulatory

office’s contact information

X California law requires that CFP’s name,

address, and telephone number be on such

contracts.

Source: CFP, California Department of Consumer Affairs.

The Board of Funeral Directors and Embalmers of the Department of

Business and Professional Regulation has jurisdiction over the funeral

industry in Florida. The Board is made up of seven members appointed by

the governor; five of whom are licensed funeral directors, and two of

whom are consumer representatives who must have no affiliation with the

funeral industry.

Table IV.2 provides information on the regulation and oversight of Florida

funeral homes and shows state requirements regarding consumer

information.

Category Yes No Comments

Law or regulation

Licensing requirement for funeral directors, embalmers, and

funeral establishments

X All three licenses must be renewed every 2

years.

Requirement that funeral directors complete continuing

education credits

X Licensees are required to complete 12 hours of

continuing education every 2 years. Licensees

also must have completed a single Boardapproved course on communicable diseases

and HIV/AIDS.

Requirement that state regulatory office be notified of change

of funeral home ownership

X

Requirement prohibiting the combined ownership of funeral

homes and cemeteries

X

Requirement that low-cost caskets be included as part of

funeral home displays

X The least expensive casket offered for sale

must be displayed in the same manner as the

other caskets.

Florida

Table IV.2: Florida Funeral Homes—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 49 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Oversight

Required annual inspections of all funeral homes X Annual inspections of funeral homes are

required, and additional inspections can be

conducted in response to complaints. State

inspectors have responsibility for 800 to 1,000

funeral homes in addition to inspections for

cosmetology salons, barbers, and

veterinarians.

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about funeral goods and

services

X

Requirement that all funeral contracts contain state regulatory

office’s contact information

X

Source: Board of Funeral Directors and Embalmers, Division of Professions, Florida Department of

Business and Professional Regulation.

The State Board of Morticians, Department of Health & Mental Hygiene

regulates the funeral industry in Maryland. The Board of Morticians

consists of 12 members; 8 of whom are licensed morticians or funeral

directors, and 4 are consumer representatives. An Executive Director

oversees the day-to-day work of the Board.

Table IV.3 provides information on the regulation and oversight of

Maryland funeral homes and shows state requirements regarding

consumer information.

Category Yes No Comments

Law or regulation

Licensing requirement for funeral directors, embalmers, and

funeral establishments

X All three of these licenses must be renewed

every 2 years.

Requirement that funeral directors complete continuing

education credits

X Licensees are required to complete the

equivalent of 12 hours of Board-approved

continuing education courses during the 2-year

term of the license.

Requirement that state regulatory office be notified of change

of funeral home ownership

X

Requirement prohibiting the combined ownership of funeral

homes and cemeteries

X A Board of Morticians official stated that the

owner would be required to have separate

licenses for the funeral home and the

cemetery.

Requirement that low-cost caskets be included as part of

funeral home displays

X

Oversight

Required annual inspections of all funeral homes X Inspections also are made on the basis of

written complaints received by the Department.

Maryland

Table IV.3: Maryland Funeral Homes—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 50 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about funeral goods and

services

X A Board of Morticians official stated that the

Board has produced a brochure, in

collaboration with the Maryland Office of

Cemetery Oversight, which will be made

available to funeral homes for distribution.

However, another official added that funeral

homes are not required by law to hand out

these brochures.

Requirement that all funeral contracts contain state regulatory

office’s contact information

X

Source: State Board of Morticians, Department of Health & Mental Hygiene.

The Bureau of Funeral Directing of the State of New York’s Department of

Health has jurisdiction over funeral homes in New York State. A Director

administers the Bureau. The Bureau also has a funeral directing advisory

board, which consists of six licensed funeral directors, three consumer

representatives, and one cemetery representative.

Table IV.4 provides information on the regulation and oversight of New

York funeral homes and shows state requirements regarding consumer

information.

Category Yes No Comments

Law or regulation

Licensing requirement for funeral directors, embalmers, and

funeral establishmentsa

X All three licenses must be renewed every 2

years.

Requirement that funeral directors complete continuing

education credits

X A Bureau of Funeral Directing official stated

that a continuing education bill passed the

state legislature and is currently awaiting the

governor’s signature. If enacted, this bill would

require 12 hours of continuing education every

2 years.

Requirement that state regulatory office be notified of change

of funeral home ownership

X

Requirement prohibiting the combined ownership of funeral

homes and cemeteries

X

Requirement that low-cost caskets be included as part of

funeral home displays

X

Oversight

Required annual inspections of all funeral homes X Bureau officials stated that about 300 of the

state’s approximately 2,000 funeral homes are

inspected each year. These officials further

stated that inspections and investigations are

largely complaint driven.

New York

Table IV.4: New York Funeral Homes—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 51 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about funeral goods and

services

X The Bureau has produced separate consumer

brochures for preneed and at-need funeral

arrangements; however, there is no

requirement that funeral directors make these

brochures available to consumers.

Requirement that all funeral contracts contain state regulatory

office’s contact information

X A Bureau of Funeral Directing official stated

that the Bureau’s contact information is

required to be included on the itemized

statement that funeral directors give to

consumers.

a

An official from the Bureau of Funeral Directing said that New York licenses funeral firms, not funeral

establishments.

Source: Bureau of Funeral Directing, New York Department of Health.

The Texas Funeral Service Commission regulates funeral homes in Texas.1

The Commission is made up of nine commissioners, including four

licensed embalmers or funeral directors and five consumer

representatives.2

 An Executive Director administers the daily business of

the Commission.

Table IV.5 provides information on the regulation and oversight of Texas

funeral homes and shows state requirements regarding consumer

information.

Category Yes No Comments

Law or regulation

Licensing requirement for funeral directors, embalmers, and

funeral establishments

X A Texas Funeral Service Commission official

stated that funeral directors and embalmers

licenses must be renewed every 2 years and

funeral establishment licenses must be

renewed annually.

Requirement that funeral directors complete continuing

education credits

X Licensees renewing in 1999 are required to

complete 14 hours of continuing education.

Licensees renewing in 2000 are required to

complete 16 hours of continuing education.

Requirement that state regulatory office be notified of change

of funeral home ownership

X

Requirement prohibiting the combined ownership of funeral

homes and cemeteries

X

 

1

Amendments to the law governing the Texas Funeral Service Commission took effect on September 1,

1999. Information about regulation, oversight, and consumer information concerning Texas funeral

homes was current through July 1999, the end of our data collection period.

2

Under the amended law, the Commission is made up of six Commissioners, including two persons

who are each licensed as both a funeral director and embalmer and four consumer representatives.

Texas

Table IV.5: Texas Funeral Homes—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 52 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Requirement that low-cost caskets be included as part of

funeral home displays

X

Oversight

Required annual inspections of all funeral homes X Although Texas law requires that funeral

establishments be inspected every 2 years, a

Commission official stated that all Texas

funeral establishments are inspected on an

annual basis.a

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about funeral goods and

services

X Texas law requires that the Commission

produce and make available to funeral

establishments a consumer brochure for

funeral purchases. Funeral establishments

are required to provide each prospective

customer with a copy of the brochure when

funeral services are discussed.

Requirement that all funeral contracts contain state regulatory

office’s contact information

X

a

Under the amended law, funeral establishments must be inspected annually.

Source: Texas Funeral Service Commission.

CFP also regulates the cemetery industry in California. CFP has

jurisdiction over private cemeteries but does not regulate others, such as

religious and municipal cemeteries and fraternal burial parks. As

mentioned earlier, CFP has jurisdiction over both the funeral and cemetery

industries in California.

Table IV.6 provides selected information on the regulation and oversight of

cemeteries in California and shows state requirements regarding consumer

information.

Category Yes No Comments

Law or regulation

Jurisdiction over all cemeteries within state X Religious and public cemeteries, and certain

private and fraternal burial parks less than 10

acres in size and established before

September 19, 1939, are exempted from state

regulation. CFP officials stated that about 200

of the approximately 2,000 cemeteries,

representing about 40% of the burials in the

state, are under CFP’s jurisdiction.

Cemeteries

California

Table IV.6: California Cemeteries—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 53 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Licensing requirements X Separate cemetery brokers and salespersons

licenses must be obtained from CFP and must

be renewed on an annual basis. A certificate

of authority also must be obtained for a

cemetery before interments can be made

there.

Restrictions on what cemeteries can sell X

Perpetual or endowment care requirements a X California law does not permit a cemetery

authority to represent an endowment care

fund as “perpetual or permanent.” CFPregulated cemeteries must create an

endowment care fund and must fulfil a

minimum deposit requirement of $2.25 per

square foot for each grave sold.

Oversight

Required annual inspections of all cemeteries X CFP conducts investigations of regulated

cemeteries on the basis of complaints.

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about cemetery goods

and services

X California law requires that CFP produce and

make available to cemetery authorities a

consumer guide for funeral and cemetery

purchases. Cemetery authorities are required

to prominently display and make available this

guide.

Requirement that all cemetery contracts contain state

regulatory information

X California law requires that CFP’s name,

address, and telephone number be on such

contracts

a

The selected states have additional care requirements for items, including crypts and mausoleums as

well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage to

states’ perpetual or endowment care deposit requirements for gravesites sold. According to a

cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of

maintenance regardless of available funding; under endowment care, a cemetery will provide a

certain level of maintenance according to the level of funding.

Source: CFP, California Department of Consumer Affairs.

The Board of Funeral and Cemetery Services, Department of Banking and

Finance, Office of the Comptroller, regulates the cemetery industry in

Florida. The Board consists of seven members appointed by the governor,

including two funeral directors who are not associated with a cemetery

company, two licensed cemetery operators, and three consumers who are

not associated with the funeral or cemetery industry. The Board does not

have jurisdiction over certain religious, county and municipal, and

community and nonprofit association cemeteries.

Table IV.7 provides selected information on the regulation, oversight, and

information available to consumers concerning cemeteries under Florida’s

jurisdiction.

Florida
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 54 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Law or regulation

Jurisdiction over all cemeteries within state X An official with the Office of the Comptroller

stated that approximately 170 of the 3,000

cemeteries in the state are under the

jurisdiction of the Office. Some of the

cemeteries that fall outside of the Office’s

jurisdiction include religious cemeteries of less

than 5 acres; religious cemeteries owned and

operated before June 23, 1976; county and

municipal cemeteries; and community and

nonprofit association cemeteries, which

provide only single-level ground burial and do

not sell burial spaces or merchandise.

Licensing requirements X A license is required to operate a cemetery,

and must be renewed on an annual basis.

Restrictions on what cemeteries can sell X

Perpetual or endowment care requirementsa X Cemeteries regulated by the Office of the

Comptroller must deposit into a care and

maintenance trust fund 10% of payments

received for gravesites sold.

Oversight

Required inspections of all cemeteries X An official with the Office of the Comptroller

stated that cemeteries are inspected annually

for upkeep and recordkeeping. The Office has

the authority to examine the financial affairs of

cemetery companies and to conduct

investigations on the basis of written

complaints.

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about cemetery goods

and services

X

Requirement that all cemetery contracts contain state

regulatory information

X An official from the Office of the Comptroller

said that preneed cemetery contracts must

contain certain disclosures, including state

regulatory information; however, these

disclosures are not required for at-need

contracts.

 aThe selected states have additional care requirements for items, including crypts and mausoleums

as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage

to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a

cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of

maintenance regardless of available funding; under endowment care, a cemetery will provide a

certain level of maintenance according to the level of funding.

Source: Bureau of Funeral and Cemetery Services, Division of Finance, Office of the Comptroller.

The Office of Cemetery Oversight in the Department of Labor, Licensing,

and Regulation (DLLR) regulates the cemetery industry in Maryland. The

Office was created in 1997 in response to concerns that consumers were

Table IV.7: Florida Cemeteries—Regulation, Oversight, and Consumer Information

Maryland
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 55 GAO/GGD-99-156 Funeral-Related Industries

not adequately protected in their dealings with cemeteries. The Office has

responsibilities for all but certain religious, nonprofit cemeteries in the

state and is administered by a Director appointed by the Secretary of

DLLR.

Table IV.8 provides selected information on the regulation, oversight, and

information available to consumers concerning cemeteries under

Maryland’s jurisdiction.

Category Yes No Comments

Law or regulation

Jurisdiction over all cemeteries within state X Religious, nonprofit cemeteries that do not

sell preneed goods and not-for-profit

organizations created before 1900 are

exempted from the Office’s jurisdiction. An

Office of Cemetery Oversight official stated

that the Office has jurisdiction over about 60

for-profit cemeteries. In addition, this official

estimated that there are approximately 300

nonprofit cemeteries and 800 religious

cemeteries in the state.

Licensing requirements X Cemetery operators must register with the

Office and must renew registrations every 2

years.

Restrictions on what cemeteries can sell X

Perpetual or endowment care requirementsa X Maryland requires that, if the cemetery offers

perpetual care, 10% of the selling price of

each burial lot or 35 cents for each square

foot of land burial space be placed in a trust

fund for perpetual care.

Oversight

Required inspections of all cemeteries X Although there is no requirement that all

licensed cemeteries in the state be inspected

on an annual basis, an Office of Cemetery

Oversight official stated that these cemeteries

are subject to inspection at any time.

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about cemetery goods

and services

X An Office of Cemetery Oversight official

stated that the Office has produced a

consumer brochure, in collaboration with the

State Board of Morticians that will be made

available to cemeteries for distribution.

However, this official stated that cemeteries

are not required by law to hand out these

brochures.

Requirement that all cemetery contracts contain state

regulatory information

X

 aThe selected states have additional care requirements for items, including crypts and mausoleums

as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage

Table IV.8: Maryland Cemeteries—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 56 GAO/GGD-99-156 Funeral-Related Industries

to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a

cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of

maintenance regardless of available funding; under endowment care, a cemetery will provide a

certain level of maintenance according to the level of funding.

Source: Maryland Office of Cemetery Oversight, Division of Occupational and Professional Licensing,

Department of Labor, Licensing, and Regulation.

The Division of Cemeteries of the New York Department of State regulates

the cemetery industry in New York. The Division is administered by a

Director who carries out day-to-day operations. The Director is appointed

by the State Cemetery Board, which comprises the Secretary of State, the

Attorney General, and the Commissioner of Health. New York does not

have jurisdiction over religious or municipal cemeteries. However, New

York also requires that cemeteries under its jurisdiction be operated on a

nonprofit basis. According to Division of Cemetery Officials, this restricts

profit-making entities from taking advantage of consumers at a time of

vulnerability. New York also prohibits joint ownership of funeral homes

and cemeteries. Table IV.9 provides selected information on the regulation,

oversight, and information available to consumers concerning cemeteries

under New York’s jurisdiction.

Category Yes No Comments

Law or regulation

Jurisdiction over all cemeteries within state X The Division of Cemeteries does not have

jurisdiction over religious or municipal

cemeteries. Division of Cemeteries officials

stated that the Division has jurisdiction over

1,885 of the more than 6,000 cemeteries in

the state.

Licensing requirements X

Restrictions on what cemeteries can sell X Officials stated that cemeteries are permitted

to sell grave liners; but they are prohibited

from selling caskets, burial vaults, and

monuments.

Perpetual or endowment care requirementsa X Cemeteries must deposit 10% of the sale of a

lot into a permanent maintenance fund and

must deposit an additional 15% deposit into a

current maintenance fund.

Oversight

Required annual inspections of all cemeteries X Inspections are largely complaint-driven.

Cemeteries with assets of $400,000 or more

are subject to an examination by an

independent certified public accountant. The

Division also conducts field and desk audits

on the basis of financial reports resulting from

these examinations.

New York

Table IV.9: New York Cemeteries—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 57 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about cemetery goods

and services

X

Requirement that all cemetery contracts contain state

regulatory information

X

 aThe selected states have additional care requirements for items, including crypts and mausoleums

as well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage

to states’ perpetual or endowment care deposit requirements for gravesites sold. According to a

cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of

maintenance regardless of available funding; under endowment care, a cemetery will provide a

certain level of maintenance according to the level of funding.

Source: Division of Cemeteries, New York Department of State.

The Special Audits Division of the Texas Department of Banking regulates

the cemetery industry in Texas. The Department does not have jurisdiction

over certain religious, public, family, and non-profit cemeteries.

Table IV.10 provides selected information on the regulation, oversight, and

information available to consumers concerning cemeteries under Texas

jurisdiction.

Category Yes No Comments

Law or regulation

Jurisdiction over all cemeteries within state X Religious, family, fraternal, or community

cemeteries not larger than 10 acres,

unincorporated associations of plot owners not

operated for profit, and nonprofit corporations

organized by plot owners are not under the

jurisdiction of the Department.

Licensing requirements X Department of Banking officials stated that

perpetual care cemeteries are required to be

licensed and that these licenses must be

renewed annually.

Restrictions on what cemeteries can sell X

Perpetual or endowment care requirementsa X Cemetery corporations must deposit the

greater of $1.50 a square foot of ground area

conveyed as perpetual care property or 10% of

the total purchase price of that ground area.

Oversight and Consumer Information

Required annual inspections of all cemeteries X The books and records of cemetery

corporations relating to their perpetual care

trust funds are required to be examined by the

Department on annual basis, or as often as

necessary.

Texas

Table IV.10: Texas Cemeteries—Regulation, Oversight, and Consumer Information
Appendix IV

Information on Funeral Homes and Cemeteries in Selected States

Page 58 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Consumer Information

Requirement that state regulatory office produce a consumer

brochure for consumers who inquire about cemetery goods

and services

X

Requirement that all cemetery contracts contain state

regulatory information

X

a

The selected states have additional care requirements for items, including crypts and mausoleums as

well as other cemetery goods. However, for purposes of comparison, GAO is limiting its coverage to

states’ perpetual or endowment care deposit requirements for gravesites sold. According to a

cemetery industry representative, perpetual care suggests a cemetery will provide a certain level of

maintenance regardless of available funding; under endowment care, a cemetery will provide a

certain level of maintenance according to the level of funding.

Source: The Special Audits Division of the Texas Department of Banking.
Appendix V

Information on Preneed Arrangements in the

Selected States

Page 59 GAO/GGD-99-156 Funeral-Related Industries

This appendix contains information on preplanned, prepaid funeral

transactions, which are commonly called preneed arrangements. In

addition, the appendix provides information on the regulation of preneed

arrangements in the five selected states.

In purchasing a preneed arrangement, a consumer typically makes an

agreement with a preneed seller to pay for funeral goods and services that

will be provided at a later time—that is, following the death of the

consumer or another designated person. In many cases, the consumer has

the option of selecting a guaranteed price contract, which fixes the price of

goods and services selected, regardless of price inflation that may occur

after the contract is signed.

According to death care industry studies, the most commonly used options

for funding preneed arrangements are trust accounts and insurance or

annuity policies. Conning & Company, an insurance research and

publication firm, describes the trust option as a state-regulated trust

account that is established in connection with the preneed contract and

managed by a trustee.1

 According to Conning & Company, the rationale

behind this funding method is that interest earned on the trust account will

accumulate over time so that future increases in funeral prices can be

accounted for. The funeral provider receives the funds held in trust after

the funeral. According to a 1996 law journal article, under state law, a

consumer also typically has the option of creating an irrevocable trust

contract, which allows the consumer to maintain his or her eligibility for

public assistance.2

According to the article, under the insurance option, the consumer

purchases, either in a lump sum or by installments, an insurance policy

and names the seller as the beneficiary of the policy.3

 Following the

consumer’s death the benefit is paid out to the seller. According to

Conning & Company, these preneed insurance products typically have an

increasing death benefit to cover future increases in the prices of funeral

goods and services. Conning & Company states that another option for

consumers who would face difficulty obtaining life insurance is to

purchase annuities. Following the death of the purchaser, the annuity is to

 

1

Preneed Insurance: A Business to Die For? 1998, Conning & Company (Hartford: 1998).

2

Judith A. Frank, “Preneed Funeral Plans: The Case for Uniformity,” The Elder Law Journal, Spring

(1996).

3

 The designation of who may be the beneficiary depends on the state where the insurance policy is

sold. For example, a Maryland Insurance Administration official stated that in Maryland the funeral

director could not be named the beneficiary.

Preneed Arrangemen Preneed Arrangements
Appendix V

Information on Preneed Arrangements in the Selected States

Page 60 GAO/GGD-99-156 Funeral-Related Industries

be paid out by the insurer to the funeral provider to cover funeral

expenses.

Conning & Company states that preneed insurance typically is sold in

conjunction with a funeral home, either by a funeral director who holds an

insurance license or an independent insurance agent. A spokesman for the

preneed insurance industry said that preneed insurance is actuarially

based and has less underwriting than other whole life policies. This

spokesman described a typical 10-year installment premium plan as one

that would pay a death benefit of 35 percent of face value during the first

year, 70 percent during the second year, and 100 percent the third year and

thereafter. According to death care industry observers, an advantage of

preneed insurance policies over trusts is that unlike trust accounts, the

purchaser is not taxed for interest income earned. However, an insurance

industry spokesman also noted that the rate of return for preneed

insurance is typically lower than that of trusts.

The following tables provide information on the regulation of preneed

arrangements in California, Florida, Maryland, New York, and Texas.

The Cemetery and Funeral Programs (CFP) of the California Department

of Consumer Affairs has jurisdiction over preneed funeral trusts in

California, and the California Department of Insurance has jurisdiction

over preneed insurance.

Table V.1 contains information on the regulation of preneed arrangements

in California.

Category Yes No Comments

Trusts

Trusting requirements X Trusting requirements are 100% for funeral

goods and services.

Administrative fees permitted X Trustees may withdraw an annual fee for

administering a funeral trust from the current

trust income. CFP officials stated that the total

withdrawal in any year shall not exceed 4% of

the trust balance.

Both revocable and irrevocable contracts offered X

Consumer receives refund if trust is revoked X The consumer would receive 100% plus

interest less administration fees and a

revocation fee.a

Regulation of Preneed

Arrangements in the

Five Selected States

California

Table V.1: California Regulation of Preneed Arrangements
Appendix V

Information on Preneed Arrangements in the Selected States

Page 61 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Contracts directly transferable to another state X CFP officials stated that the law does not

specifically address this issue, and the terms of

the individual contract would determine

whether the contract may be transferred to

another state.

Restrictions on where trust funds may be deposited X CFP officials stated that California law provides

various options for depositing funeral trust

funds, such as in bonds or securities

guaranteed by the U.S. government or agency;

bonds or securities guaranteed by the state, or

any city or county within the state, or

certificates of deposit or other interest-bearing

accounts in any bank in the state insured by

the Federal Deposit Insurance Corporation

(FDIC). CFP officials stated that California law

also allows the funds to be deposited in any

investment deemed prudent by a prudent

person as allowed under the California Uniform

Prudent Investor Act.

Restrictions on where deposits may be invested X CFP officials stated that California law provides

various options for investing funeral trust funds,

such as in bonds or securities guaranteed by

the U.S. government or agency; bonds or

securities guaranteed by the state, or any city

or county within the state, or certificates of

deposit or other interest-bearing accounts in

any bank in the state insured by FDIC. CFP

officials stated that California law also allows

the funds to be invested in any investment

deemed prudent by a prudent person as

allowed under the California Uniform Prudent

Investor Act.

State consumer protection trust fund X

Insurance

 Sale of preneed insurance permitted within state X

a

The revocation fee shall not exceed 10 percent of the principal and is chargeable against earned

income only.

Source: CFP, California Department of Consumer Affairs.

The Board of Funeral and Cemetery Services, Department of Banking and

Finance, Office of the Comptroller, has regulatory responsibility for

preneed funeral trusts, and the Department of Insurance regulates preneed

insurance policies.

Florida
Appendix V

Information on Preneed Arrangements in the Selected States

Page 62 GAO/GGD-99-156 Funeral-Related Industries

Table V.2 contains information on the regulation of preneed arrangements

in Florida.

Category Yes No Comments

Trusts

Trusting requirements X Sellers of preneed contracts are permitted to

choose between trusting 30% of the purchase

price or 110% of the wholesale price of

funeral goods. For funeral services, the

trusting requirement is 70% of the purchase

price.

Administrative fees permitted X An official with the Office of the Comptroller

stated that administrative fees are permitted

to be withdrawn from trust income and there is

no limit on these fees.

Both revocable and irrevocable contracts offered X

Consumer receives refund if trust is revoked X The consumer is entitled to receive a full

refund of the purchase price if the contract is

revoked within 30 days of purchase. After 30

days, services remain fully refundable, but

goods are refundable if they cannot be

delivered within 24 hours of need. An official

with the Office of the Comptroller stated that

any accumulated interest earnings are paid to

the seller.

Contracts directly transferable to another state X An official with the Office of the Comptroller

stated that a transfer could be accomplished

only by canceling the contract and entering

into a new contract in a different location.

Restrictions on where trust funds may be deposited X Trusts must be deposited with either a

national or state bank or savings and loan

association having trust powers or a trust

company in the state.

Restrictions on where deposits may be invested X Florida provides the opportunity to invest in

numerous types of investments. These

include, for example, bonds, notes, and other

obligations of the United States; Florida state

and county bonds pledging the full faith and

credit of the state or county; savings accounts

or certificates of deposit insured by FDIC; and

investments in real property.

State consumer protection trust fund X Use of the fund for an individual case is

restricted to 50% of the fund’s current

balance. Preneed sellers must contribute

$1.00 to the fund for all contracts.

Insurance

Sale of preneed insurance permitted within state X

Source: Bureau of Funeral and Cemetery Services, Division of Finance, Office of the Comptroller.

Table V.2: Florida Regulation of Preneed Arrangements
Appendix V

Information on Preneed Arrangements in the Selected States

Page 63 GAO/GGD-99-156 Funeral-Related Industries

The State Board of Morticians, Department of Health & Mental Hygiene

has regulatory responsibility over preneed funeral arrangements in

Maryland. In May 1999, Maryland’s Governor signed legislation to

authorize a preneed contract or preneed burial contract to be funded by

life insurance. The Maryland Insurance Administration has jurisdiction

over insurance contracts in Maryland.

Table V.3 contains information on the regulation of preneed arrangements

in Maryland.

Category Yes No Comments

Trusts

Trusting requirements X Sellers of preneed contracts are required to

place 100% of funds received for both goods

and services into trust, with the exception of

caskets, for which they are required to trust

80%.

Administrative fees permitted X

Both revocable and irrevocable contracts offered X

Consumer receives refund if trust is revoked X Board of Morticians officials stated that the

consumer would receive a refund of the full

purchase price plus interest.

Contracts directly transferable to another state X Board of Morticians officials stated that

irrevocable preneed funeral contracts can be

transferred to another state. For revocable

contracts, consumers would have to cancel the

contract and enter into a new contract in the

new location.

Restrictions on where trust funds may be deposited X Funds shall be deposited into an interestbearing escrow or trust account with a federally

insured banking or savings and loan institution.

Restrictions on where deposits may be invested X A Board of Morticians official stated that there

are no further requirements in Maryland law

regarding investments. This official stated that

all investments must be made with a federally

insured bank or savings and loan institution.

State consumer protection trust fund X

Insurance

Sale of preneed insurance permitted within state X

Source: State Board of Morticians, Department of Health & Mental Hygiene.

Maryland

Table V.3: Maryland Regulation of Preneed Arrangements
Appendix V

Information on Preneed Arrangements in the Selected States

Page 64 GAO/GGD-99-156 Funeral-Related Industries

The Bureau of Funeral Directing of the State of New York’s Department of

Health has jurisdiction over preneed funeral trusts. New York State does

not allow the sale of preneed insurance.

Table V.4 contains information on the regulation of preneed arrangements

in New York.

Category Yes No Comments

Trusts

Trusting requirements X Trusting requirements are 100% for funeral

goods and services.

Administrative fees permitted X The administrative fee may not exceed 0.75 of

1% of the trust fund. If a preneed seller

charges this fee, this must be disclosed to the

consumer in writing.

Both revocable and irrevocable contracts offered X

Consumer receives refund if trust is revoked X The consumer would receive a refund of the

purchase price plus accrued interest.

Contracts directly transferable to another state X A Bureau of Funeral Directing official stated

that irrevocable contracts are directly

transferable. For revocable contracts,

consumers would have to cancel the contract

and enter into a new contract in a different

location.

Restrictions on where trust funds may be deposited X Funds must be deposited in an interestbearing account in a bank or savings and loan

association that shall earn interest at a rate

not less than the prevailing rate of interest

earned by other such deposits in such banks

and savings and loan associations; or a trust

company in an investment backed by the U.S.

government.

Restrictions on where deposits may be invested X No further investments may be made with

deposited funds.

State consumer protection trust fund X

Insurance

Sale of preneed insurance permitted within state X

Source: Bureau of Funeral Directing, State of New York Department of Health.

Preneed funeral trust contracts are regulated by the Special Audits

Division of the Texas Department of Banking. Preneed insurance

contracts are regulated by both the Texas Department of Insurance and

the Texas Department of Banking.

Table V.5 contains information on the regulation of preneed arrangements

in Texas.

New York

Table V.4: New York Regulation of Preneed Arrangements

Texas
Appendix V

Information on Preneed Arrangements in the Selected States

Page 65 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Trusts

Trusting requirements X For funeral goods and services, the preneed

seller has the option of trusting either 90% or

100% of sales proceeds. However, the seller

must disclose to the consumer which option

has been selected.

Administrative fees permitted X The seller may withdraw money from earnings

to pay (1) reasonable and necessary trustee’s

fees or depository fees, (2) the examination

fee for one examination by the Texas

Department of Banking each calendar year, or

(3) the expense of preparation of financial

statements. With the Texas Department of

Banking’s approval, the seller also may

withdraw money from earnings on an account

to pay for (1) any tax incurred or (2) an

assessment.

Both revocable and irrevocable contracts offered X

Consumer receives refund if trust is revoked X The purchaser is entitled to a refund of the

amount paid minus the amount that the seller

is permitted to retain for expenses. This

amount is not to exceed one-half of all money

collected or paid until the seller has received

an amount equal to 10% of the total amount

the purchaser agreed to pay under the

contract.

Contracts directly transferable to another state X Department of Banking officials stated that

there is no statutory requirement for contracts

to be transferable.

Restrictions on where trust funds may be deposited X Funds must be deposited in a bank or savings

and loan association in the state in a federally

insured interest-bearing account, or a trust

department in a bank or trust company

authorized to do business in the state.

Restrictions on where deposits may be invested X Texas law provides the opportunity to invest in

numerous types of investments. Some of

these include federally insured banks or

savings and loan associations, U.S.

government bonds, certain state or local

bonds, and the common stock of a U.S.

corporation with a net worth of at least $1

million.

State consumer protection trust fund X This fund is termed the Guaranty Fund and its

stated purpose is to guarantee performance

by sellers of trust funded prepaid funeral

contracts. The Department of Banking

collects $1 from sellers of trust funded

preneed contracts for each contract sold, to

be deposited in this fund.

Table V.5: Texas Regulation of Preneed Arrangements
Appendix V

Information on Preneed Arrangements in the Selected States

Page 66 GAO/GGD-99-156 Funeral-Related Industries

Category Yes No Comments

Insurance

Sale of preneed insurance permitted within state X

Source: Special Audits Division, Texas Department of Banking.

Consumers can also make preneed arrangements with cemeteries in the

five states. In Florida and New York, cemeteries and funeral homes are

included under the same sections of state preneed law;4 in Texas, a

Department of Banking official stated that with the exception of perpetual

care funds, cemetery trusts are not regulated; and in California and

Maryland, different laws apply to cemetery and funeral trusts.5

 For

example, although California law restricts the amount of administrative

fees that can be withdrawn from current funeral trust income, a CFP

official told us that California law does not place any limitation on the total

amount of administrative fees that may be withdrawn from preneed

cemetery trusts, which in California are called special care funds. Under

Maryland law, sellers of preneed funeral contracts are required to place

100 percent of funds received for both goods and services into trust (with

the exception of caskets). Sellers of preneed cemetery contracts are

required to place 55 percent of funds received for goods and services into

trust (with the exception of caskets, for which, as with funeral trusts, they

are required to trust 80 percent).

 

4

 In New York, however, an exception is made for cemetery sales of lots or graves, which are not

covered by the state’s preneed law.

5

In three states--California, Florida, and Texas—the same state agency that has responsibility for the

regulation of preneed funeral contracts also has responsibility for regulation of preneed cemetery

contracts. In Maryland, the Office of Cemetery Oversight has jurisdiction over preneed cemetery

contracts. In New York, the Division of Cemeteries has such jurisdiction.
Appendix VI

Agency Comments

Page 67 GAO/GGD-99-156 Funeral-Related Industries
Appendix VI

Agency Comments

Page 68 GAO/GGD-99-156 Funeral-Related Industries
Appendix VI

Agency Comments

Page 69 GAO/GGD-99-156 Funeral-Related Industries
Appendix VI

Agency Comments

Page 70 GAO/GGD-99-156 Funeral-Related Industries
Appendix VI

Agency Comments

Page 71 GAO/GGD-99-156 Funeral-Related Industries
Appendix VII

GAO Contacts and Staff Acknowledgments

Page 72 GAO/GGD-99-156 Funeral-Related Industries

Laurie E. Ekstrand, (202) 512-8676

John F. Mortin, (202) 512-8676

Jeanne M. Barger, (214) 777-5600

Jeremy Latimer, Susan Michal-Smith, Jan B. Montgomery, Kiki

Theodoropoulos, and Gregory H. Wilmoth made key contributions to this

report.

GAO Contacts

Acknowledgements
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